4.31.3  TEFRA Examinations - CTF Procedures (Cont. 1)

4.31.3.5 
Notice Packages

4.31.3.5.6  (06-11-2013)
FPAA

  1. For key cases (whether agreed, unagreed or no-change) that have non-protested 60-day letters or for key cases that were protested but have not settled, Technical Services or Appeals must prepare an FPAA package for the TMP and for the power of attorney, if applicable.

    1. Technical Services or Appeals must insure that 120 days have elapsed since the last NBAP was mailed to any partner.

    2. The key case file remains in Technical Services or Appeals.

    3. The package is forwarded to the key case CTF with an Form 14434, TEFRA Electronic Package Check Sheet.

  2. The key case CTF will receive the FPAA package, review it for completeness, and acknowledge the Form 14434, TEFRA Electronic Package Check Sheet (within 3 days of receipt). The package should contain the following:

    1. Form 14434, TEFRA Electronic Notice Package Check Sheet (Appeals uses Form 14298);

    2. A Letter 1830 signed on behalf of the Technical Support Manager for each TMP address;

    3. A Form 870-PT addressed to the TMP, including a schedule of adjustments which shows the adjustment amount for each item;

    4. An explanation of all adjustments (statutory notice language). Appeals generally does not use a separate explanation of adjustments on a no change FPAA, but includes the language on the schedule of adjustments.;

    5. One copy of each dated FPAA, both named and generic, mailed to the TMP.

    6. A Form 886-Z with corrected amount for each adjusted item for each partner and correct profit or loss percentages. If the Schedules K-1 show various, then leave blank (Appeals does not use Form 886-Z on a no-change FPAA). The Schedule of Adjustments and the Form 4605 must be reviewed to ensure the figures match. The 886-Z must then be matched to the Schedules K-1. Any special allocations or reallocations must be noted on the check sheet.;

    7. A Supplemental Report for affected items.;

    8. A complete copy of the revenue agent's or Appeals report including Form 4605-A, the explanation of adjustments, and the appropriate distribution schedule. This will be sent whether a 60-day package was issued or not (Appeals does not use a Form 4605-A on a no change FPAA.);

    9. A completed check sheet verifying all required items are included in the FPAA package. The check sheet will be included if the FPAA package is originating from Technical Services. If the package is originating in Appeals, they will use Form 14298, Appeals TEFRA Electronic Notice Package Check Sheet; and

    10. Form 5402, if the package is originating in Appeals.

  3. If the package is incomplete, the CTF will contact Technical Services or Appeals to take every action to perfect the package.

    1. As a last resort, packages with major omissions will be returned to Technical Services or Appeals for perfection if there is adequate time remaining on the statute.

    2. Where less than 90 days remain on the statute, the CTF and Technical Services or Appeals will coordinate completion of the package and protection of the statute.

  4. Take caution to ensure that the statute is protected. If the statute will expire within 45 days,Technical Services or Appeals will mail the FPAA to the TMP using certified mail and simultaneously mail a copy of the FPAA and a copy of the certified mailing list to the CTF.

  5. The CTF will review the most recent Report 22-3 to ensure that all investors are linked. If any investors are not linked, determine what corrective action must be taken.

    1. Unlinked notice investors must be re-linked using CC TSLODA. The partner Schedule K-1 name and address must be input using CC TSCHG after research is done to secure the most recent address.

    2. All investors who have had partnership items converted to nonpartnership items should have the "TEFRA" indicator removed.

    3. Do not enter one-year assessment date to stop notices from being generated, as this will distort PCS reports.

  6. If penalties are being proposed and no 60-day letter was previously issued, the CTF will input the penalty indicator on the key case record using CC TSCHG.

  7. The FPAA to the TMP should be dated and mailed by certified mail. A copy mailed to a POA, if applicable, should be sent regular mail.

    1. The 60-day date, which is the date that the FPAA was mailed to the TMP, is input using CC TSCHG.

    2. If the FPAA was mailed to the TMP by the field due to statute considerations, the 60-day date should be computed to coincide with the date of the partner letters as generated by the PCS.

  8. The PCS CC TSNOT3 will generate letters for all TEFRA linked investors with no one-year assessment statute date. An additional spousal notice is generated on jointly filed returns. This provides the spouse with an opportunity to file a petition.

    1. The CTF will verify that all notice investors had a letter generated by the PCS by comparing the Certified Mail listing to the Form 886-Z.

    2. If any notice partner does not have a letter generated, a manual letter will be prepared.

    3. A copy of the schedule of adjustments and an explanation of adjustments (statutory notice language) that was attached to the TMP letter is attached to each partner letter.

  9. Partner letters will be folded and enclosed in envelopes bearing the return address of the CTF, including a return envelope for the partner unless Appeals specifically instructs otherwise and includes a return envelope for the partner. The FPAA to the TMP will be dated and mailed at the same time as the partner letters, unless it was previously mailed due to statute considerations.

    1. The partner letters must be mailed before the 60th day after the field mailed the dated letter to the TMP.

    2. All notice partner letters are mailed by certified mail because the courts accept the certified mail listings as proof that the notice was mailed.

  10. The key case administrative file will be noted and copies of the FPAA(s) issued to the TMP and the investors will be associated with the file. The CTF must mail the FPAAs to the investors within 30 days after the receipt of the package in the CTF.

  11. The CTF will ensure that the freeze code "H" is not removed from the key case AIMS record by CC AMFRZR until final action on the key case is completed. For example, the freeze code would be removed after the receipt of the FPAA default package or court decision package, but not until the one-year date is entered for the investors and Form 8339 is entered to reflect an item 08, Partnership Adjustment Amount, entry.

  12. The CTF will send the following back to Technical Services or Appeals:

    1. A Form 3210 addressed to originator of package (Technical Services or Appeals);

    2. A dated copy of each FPAA issued to the TMP if mailed by the CTF; and

    3. One copy of each certified mail listing, both PCS generated and manually generated.

4.31.3.6  (06-04-2004)
Closing Packages

  1. The following subsections provide explanations on closing packages.

4.31.3.6.1  (06-11-2013)
FPAA Default

  1. If no petition is filed with respect to the key case, Technical Services or Appeals (whichever office initiated the FPAA) will default the FPAA. Technical Services or Appeals will forward a default package to the key case CTF to initiate the closure of the partner cases. The Campus PCS Coordinator will input the one-year assessment statute date using CC MSCHG.

  2. The default package includes the following:

    1. A Form 14434, TEFRA Electronic Package Check Sheet marked "Default Package" clearly showing the key case name, EIN, tax period, and the one-year assessment statute date;

    2. A Form 886-Z stamped "Default" on all pages, showing the corrected amount for each adjusted item of the key case entity return (Appeals does not use Form 886-Z on a no-change FPAA.);

    3. A completed Form 4605-A (Appeals does not use a Form 4605-A on a no change FPAA.); and

    4. Penalty information (not used for tax years ending after August 5, 1997, because the penalty issues must be in the Form 4605-A). If penalties are not applicable, note that fact in the package.

  3. Upon receipt of the default package, the CTF will ensure that the one-year assessment statute date is input. The one-year assessment statute date for a default package is one year plus 150 days from the date the FPAA was issued to the TMP.

    1. If the one-year assessment statute date is not on PCS, the CTF will input it using CC MSCHG.

    2. The CTF will ensure that Form 8339 is entered to reflect an item 08, Partnership Adjustment Amount, entry, and freeze code "H" is removed from the key case on AIMS.

    3. Use CC AMFRZR to remove freeze code " H" from the key case AIMS record, but not until the one-year date is entered for all investors, including tiers.

  4. The key case CTF will forward an partner default package to the partner CTF, if not the same as the key case CTF, within 30 days of receipt of the key case default package from Technical Services or Appeals.

  5. The partner default package will include:

    1. A Form 14434, TEFRA Electronic Package Check Sheet marked "FPAA Default Package" which clearly reflects the key case name, EIN, and tax period. The Form 14434, TEFRA Electronic Package Check Sheet will reference the fact that a TSUMYP print is included to identify the investors and their one-year date.

    2. A Form 886-Z stamped "Default" which indicates the partner's corrected amount for each adjusted item.

    3. A completed Form 4605-A, with all attachments and Explanation of Items.

    4. Penalty information, if applicable, (included in the Form 4605-A for key case tax years ending after August 5, 1997). If penalties are not applicable, note that fact in the package.

    5. Any recent correspondence issued to or received from the taxpayer.

      Note:

      If the partner return is a corporate LB&I, CIC corporation, Joint Committee, and/or other corporate specialty case, the CTF will forward the information to the area office location that has the partner return in suspense as determined by the AIMS data base for that partner.

  6. If less than three months remain on the one-year assessment statute date and the partner CTF is different than the key case CTF, the Team Leader of the key case CTF will contact the Team Leader of the partner CTF to advise that a package with a short statute will be sent. The TEFRA Coordinators between the two locations may make the contacts instead of the two Team Leaders. If the package is not too voluminous, a copy should be sent by fax to the partner CTF.

  7. If the partner is a CIC corporation, other corporate specialty or Joint Committee case in Appeals jurisdiction, the Team Leader of the key case CTF will contact the Appeals Domestic Operations - Technical Specialist - TEFRA to advise that a package with a short statute will be sent. The TEFRA Coordinator of the key case CTF may make the contact instead of the Team Leader. The Team Leader of the key case CTF will fax a copy of the package to the Appeals Domestic Operations - Technical Specialist - TEFRA, or if too bulky, mail by overnight mail.

  8. After all packages are forwarded to the partner CTF's, the default package received from Technical Services or Appeals is filed in the key case administrative file which will be so noted.

  9. The key case administrative file remains filed in the TEFRA closed key case files for a minimum of 18 months. After 18 months, if there are no open partners, all contents, which are not a duplication of the key case return file, are sent to the Federal Records Center for association with the key case return.

    Note:

    The key case is not closed, and the 18-month period does not begin, until all investors have one-year dates, the "H" Freeze is removed and Form 8339 is entered to reflect an item 08, Partnership Adjustment Amount, entry.

4.31.3.6.2  (05-31-2005)
Petitioned Cases

  1. A key case may be petitioned to the Tax Court, a district court where the partnership's principal place of business is located, or the Court of Federal Claims.

  2. The venue chosen and the rules of the particular court determine the procedures that must be followed.

4.31.3.6.2.1  (06-04-2004)
Petitioned Tax Court Cases

  1. The docket list and the taxpayers' correspondence should be monitored by the CTF to determine if a partner has filed a petition in the United States Tax Court. The CTF should also be sensitive to other indications that a petition has been filed, e.g., an AIMS update to a status 8X.

  2. When an partner has filed a petition, the key case CTF will notify Technical Services or Appeals (whichever organization initiated the FPAA) that a petition was filed. If the CTF receives a copy of the partner's filing from other than Technical Services or Appeals, it will be forwarded to Technical Services or Appeals to be associated with the key case administrative file. A copy will be retained for the campus key case administrative file. If less than 15 days remain on what would be the default date for the FPAA, a copy of the petition (without any attachments, if any) will be faxed to Technical Services or Appeals.

    1. If the key case is in Technical Services, then only the key case administrative file is sent to Appeals as a docketed case.

    2. The CTF key case administrative file and the partner files will remain in CTF suspense.

  3. When the CTF receives notice that a petition was filed, either by a partner or by the TMP, the key case file will be noted to reflect the docketed case status. The docket number will be input on the PCS using CC TSCHG, item number 28. The campus key case administrative file is refiled pending the outcome of the court case.

4.31.3.6.2.2  (10-01-2010)
Petitioned District Court and Court of Federal Claims Cases

  1. Under the unified proceedings, partners may file a petition directly with either a district court or the U.S. Court of Federal Claims and gain direct access to that court. However, if either of these courts is used, each partner who files the petition must make a deposit equal to the amount their tax liability would be increased if the adjustment in the FPAA were fully sustained.

    1. The amount deposited is treated as a tax payment only for the purpose of computing interest.

    2. If jurisdiction to the court is dismissed because of the priority of a Tax Court action, the partner may request a refund of the deposit.

    3. If members of a 5-percent group file a petition, each member of the group must make the required deposit.

    4. The deposit must be made on or before the date the petition is filed.

    5. The deposit requirement is satisfied if there is a good faith attempt to deposit the correct amount and any shortfall is timely paid.

    6. The deposit amount need only include the tax. Interest and penalties do not need to be deposited.

  2. The petitioner may bring or mail in a deposit to any function within IRS. It doesn't matter if the deposit is sent to the field, the campus or Appeals. The check should include the TIN, tax period & that it is a bond to go to district court. A letter stating all the these is nice but not needed.

  3. If an action is brought in a district court or the U.S. Court of Federal Claims, only the petitioning partner is required to make the deposit. The Service will assess and collect the tax deficiency against all partners who have an interest in the proceeding, including penalties and interest including the petitioning partner. The deposit may be applied to the assessment of the petitioning partner. No assessment may be made prior to the close of the 150th day after the day the FPAA was mailed to the TMP.

  4. When the CTF is notified of a petition filed with a district court of the United States, or the United States Court of Federal Claims, the key case is treated and processed as if the FPAA had defaulted. The key case is updated to status code 90 so the partner assessments may be billed and collected. In order for AIMS to be closed, the " H" freeze must be removed. These procedures are similar to the refund litigation procedures applicable to claims.

  5. The key case CTF will prepare a closing package for each partner file. The closing package will include:

    1. A Form 3210 noting that the closing package is a district court or Court of Federal Claims closing package and clearly indicating the partnership name, tax year, EIN and a "one-year" assessment statute date. The Form must also specifically state the partner cases are to be processed as partial assessments and must remain open pending the final outcome of the litigation.

      Note:

      It is recommended a one-year date be input that is not more than 60 days from the date the packages are prepared to force the partner cases to appear on the PCS Report 4-4. The key case does not really have a one year date at this time, but the venue the partnership has selected to litigate the partnership issues requires the investors be assessed and part, if not all, of the tax be paid if they are to remain parties to the proceedings. The assessments must be made as soon as possible for the case to proceed in the courts.


    2. A Form 886-Z with the corrected amount for each partner of each adjusted item of the key case return. This Form 886-Z is the same one that was included in the FPAA package.

    3. A complete copy of the revenue agent's or Appeals report including the Form 4605-A, the explanation of adjustments and any other attachment that may be included in the report. If penalties were proposed, for tax years ending on or before August 5, 1997, they must not be assessed at this time. For tax years ending after August 5, 1997, penalties must also be assessed at this time.

  6. See IRM 4.31.4 of this Handbook for the procedures for petitioned AAR's.

  7. The key case is updated to status 90, but the 18-month period for filing the key case administrative file in the closed key case files does not begin until the litigation is final.

  8. The key case CTF will note the key case administrative file to reflect the docket status and input the docket number on the PCS using CC TSCHG, item number 28.

4.31.3.6.2.3  (10-01-2010)
Court Decisions Finalized

  1. The key case CTF will receive notification from Appeals (or in rare instances from Area Counsel) that a decision was entered with respect to a docketed case.

  2. The court settlement (stipulated decision) or court decision package will include:

    1. A Form 3210 noted as a court decision package which clearly indicates the partnership name, tax year, EIN, and one-year assessment statute date;

    2. A Form 886-Z with the corrected amount for each adjusted item of the key case entity return that reflects the terms of the court decision or settlement;

    3. A copy of the court decision document;

    4. A completed Form 4605-A; and

    5. Penalty information (not used for tax years ending after August 5, 1997, since penalties must be included in the Form 4605-A). If penalties are not applicable, note that fact in the package.

  3. When the package is received it will be reviewed by the key case CTF who will acknowledge the Form 3210 within three days of receipt. If the individual who would normally acknowledge the Form 3210 is unavailable, the manager will ensure the Form 3210 will be acknowledged by another employee (or himself/herself) within that three-day period. The individual signing the Form 3210 is only acknowledging that a package was received. It does not mean that the package was complete or that everything listed on the Form 3210 was actually received.

  4. The one-year assessment statute date will immediately be input on the key case investors and all related tiers using CC MSCHG.

    Note:

    The one-year assessment statute date is no less than one year plus 60 days from the date the court decision is entered or no more than one year from the date the decision becomes final. A Tax Court Decision is final 90 days after the decision is entered. No assessments can be made before the 90 days have passed. If the Tax Court decision is appealed, technically the case is not "final" , however the investors may be assessed after the 90-day period has elapsed. By appealing the Tax Court decision the case is similar to a refund litigation case in that the investors are looking to reduce or eliminate a Tax Court decision that increases the partner's tax liability. The assessments are processed as partial assessments like petitions originally filed in District Court or the Court of Federal Claims. The partner cases remain open pending the resolution of the appeal process. If a bond is posted in an amount equal to the entire amount of the increase in the tax liability(ies) from the Tax Court decision, the assessment(s) may be delayed until all appeals have been exhausted. If no bond is posted and assessments are being made a "one-year date" of 60 days from the date the packages are prepared should be input on the PCS. This forces the partner cases to appear on the PCS Report 4-4 and they should be worked as expeditiously as possible.

  5. The key case CTF will forward a court decision package to the partner CTF, if different from the key case CTF, within 30 days from the date the decision package is received from Appeals or Area Counsel.

  6. The package will include:

    1. A Form 3210 noted as a court decision package, which clearly indicates the key case name, tax period, EIN, one-year assessment statute date, partner name, TIN, and tax period.

    2. A copy of the court decision document.

    3. A Form 886-Z showing the corrected amount for each adjusted item of the key case entity return.

    4. A completed Form 4605-A.

    5. Any recent correspondence issued to or received from the partner.

    6. Penalty information (not used for tax years ending after August 5, 1997, since penalties are included in the Form 4605-A). If penalties are not applicable, note that fact in the package.

    Note:

    If the partner return is a corporate LB&I, CIC corporation, Joint Committee and/or other corporate specialty case, the CTF will forward the information to the exam location that has the partner return in suspense as determined by the AIMS data base for that partner. Appeals will prepare flow-through adjustments for corporate returns with an activity code of 219 or above, CIC corporation, and corporate specialty returns, which are any corporate return filed with a Form 1120 followed by a letter (for example, Form 1120L life insurance company) except Form 1120A, Form 1120S or Form 1120X. Appeals will also prepare flow-through adjustments for Joint Committee returns. Non-corporate returns, and non-CIC corporate returns with activity codes below 219, with flow-through adjustments, will have to be computed by the campus and forwarded to Appeals.

  7. If less than three months remain on the one-year assessment statute date and the partner CTF is different than the key case CTF, the Team Leader of the key case CTF will contact the Team Leader of the partner CTF to notify them that a package with a short statute will be sent. The TEFRA Coordinators between the two locations may make the contacts instead of the two Team Leaders. If the package is not too voluminous, a copy should be sent by fax to the partner CTF.

  8. If the partner is a CIC corporation, other corporate specialty or Joint Committee case in Appeals jurisdiction, the Team Leader of the key case CTF will contact the Appeals Technical Guidance Coordinator - TEFRA to notify them that a package with a short statute will be sent. The TEFRA Coordinator of the key case CTF may make the contact instead of the Team Leader. The Team Leader of the key case CTF will fax a copy of the package to the Appeals Technical Guidance Coordinator - TEFRA, or if too bulky, mail by overnight mail.

  9. After forwarding the packages to the partner CTF, the court decision package received from Area Counsel (through Appeals generally) is associated with the campus key case administrative file, which is so noted.

    1. The key case administrative file is filed in the closed TEFRA files in TIN order.

    2. The key case administrative file remains filed in the TEFRA closed key case files for a minimum of 18 months. After 18 months, if there are no partners with open OYDs, all contents, which are not a duplication of the key case return file, are sent to the Federal Records Center for association with the key case return.

      Note:

      The key case is not closed, and the 18-month period does not begin, until all investors have one-year dates, the "H" Freeze is removed and Form 8339 is entered to reflect an item 08, Partnership Adjustment Amount, entry.

4.31.3.7  (06-11-2013)
Processing Form 870 Agreements and Settlement Agreements

  1. The subsections below discuss the processing of agreements unique to TEFRA examinations.

  2. There are also rules regarding accepting faxes and signature stamps as official signatures. Consents to assess additional tax (Form 4549, Form 870, and others) of $250,000 or less can be accepted by fax if taxpayer contact has been made and the case history documents the date of contact and the desire of the taxpayer to submit the consent by fax.

  3. Closing agreements involving tax amounts of $250,000 or less can be accepted by fax if taxpayer contact has been made and the case history documents the date of contact and the desire of the taxpayer to submit the consent by fax.

  4. Consents to assess tax or closing agreements involving tax amounts in excess of $250,000 should be secured with original signatures and delivered by mail or in person.

4.31.3.7.1  (06-11-2013)
Agreements Received at the Closing Conference

  1. The key case examiner may receive a signed Form 870-PT or Form 870-LT from the partners in the key case. These will be transmitted with the RAR to Technical Services for acceptance by the Commissioner.

  2. The Forms 870 will be forwarded by Technical Services to the key case CTF within 5 days of execution. Packages are submitted to the campus by two methods, either scanned or mail.

  3. Packages should be scanned if they are not too large.

    1. Within 5 days of execution the entire package (countersigned 870PT(s)/870-LT(s), 886-A, 4605-A, 886-Z) along with the electronic coversheet should be forwarded to the appropriate CTF using the shared drive or IMS.

    2. Within 5 days of execution, all of the originally executed agreements should be mailed to the appropriate CTF. The CTF will send the executed agreements to the partners and issue a letter to the TMP notifying him/her which partners have agreed.

    3. The one-year assessment statute date for all partners who have signed agreements that have been accepted for the Commissioner must be input on PCS using CC TSCHG within 10 days of receipt of the agreement package from Technical Services. If all of the partners in the key case have signed the agreements and all of the agreements have been accepted for the Commissioner on the same date, PCS CC MSCHG may be used to input the one-year date for the partners.

    4. If all partners have agreed, then the H freeze should be released.

  4. Packages that are very large must be mailed.

    1. Within 5 days of execution mail the entire package (countersigned 870PT(s)/870-LT(s) 886-A, 4605-A, 886-Z) with the electronic coversheet to the appropriate CTF.

    2. The CTF will send the executed agreements to the partners and issue a letter to the TMP notifying him/her which partners have agreed.

    3. Within 10 days of receipt of the agreements and acknowledgement of the 3210, the CTF will input the one year dates, and release the H Freeze if all partners have agreed.

  5. Within 30 days of the execution (acceptance) date, a package containing the original agreements accepted by the Service will be transmitted to the partner CTF if different from the key case CTF, via Form 3210 with the one-year assessment statute date clearly shown on the face of the Form 3210. The partner CTF will acknowledge the Form 3210 within three days of receipt. If the individual who would normally acknowledge the Form 3210 is unavailable, the manager will ensure the Form 3210 will be acknowledged by another employee (or himself/herself) within that three-day period. The individual signing the Form 3210 is only acknowledging that a shipment was received. It does not mean that the shipment was complete or that everything listed on the Form 3210 was actually received.

  6. The agreement package sent to the partner CTF will contain:

    1. A Form 3210 transmittal with the one-year assessment statute date clearly indicated on the transmittal.

    2. The original executed Form(s) 870-PT or 870-LT including the schedule of adjustments.

    3. A completed Form 886-Z showing the corrected amount for adjusted items of income, loss, or deduction of the key case entity return that will be used for the computation of the assessment or overassessment on the partner returns.

    4. A completed Form 4605-A.

    5. Penalty information (not used for tax years ending after August 5, 1997, since penalties are included in the Form 4605-A), if applicable.

    6. A TSUMYP print to verify the partner is established and the one-year assessment statute date has been entered.

    Note:

    If the partner return is a corporate LB&I, CIC corporation, Joint Committee and/or other corporate specialty case, the CTF will forward the information to the area office location that has the partner return in suspense as determined by the AIMS data base for that partner.

    Note:

    Appeals will prepare flow-through adjustments for corporate returns with an activity code of 219 or above, CIC corporation and corporate specialty returns, which are any corporate return filed with a Form 1120 followed by a letter (for example, Form 1120L life insurance company) except Form 1120A, Form 1120S or Form 1120X. Appeals will also prepare flow-through adjustments for Joint Committee returns. Non-corporate returns, and non-CIC corporate returns with activity codes below 219, with flow-through adjustments, will have to be computed by the campus and forwarded to Appeals.

  7. Copies of Form(s) 870-PT or 870-LT and the schedule of adjustments are distributed as follows:

    1. One copy is mailed to the appropriate partner; and

    2. One copy must be placed in the campus key case administrative file.

  8. A list of the investors for whom agreements were executed is sent to the TMP.

  9. Note the actions taken on the history sheet or on the copy of Form 886-Z already in the key case administrative file.

4.31.3.7.2  (08-01-2006)
Agreements Received as a Result of a 60-Day Letter or FPAA

  1. All Forms 870-PT or 870-LT and the schedule of adjustments received directly from the partners or shareholders must be screened for altered documents or taxpayer initiated requests for settlement. The schedule of adjustments from the campus key case administrative file must be compared to the schedule of adjustments received from the partner or shareholder.

  2. All Forms 870-PT or 870-LT will be executed for the Service by a Revenue Agent, GS-12 or higher (per Delegation Order 4-19), within five days of receipt in the key case CTF. Under no circumstances, other than a short statute, should a Form 870-PT or Form 870-LT be executed by anyone other than the key case CTF.

  3. If the key case is in docketed status, coordinate with Appeals or Area Counsel.

  4. Within five days after acceptance for the Commissioner of the Forms 870-PT or 870-LT, input the one-year assessment statute date on PCS using CC TSCHG, item number 05.

  5. Process any accepted Form 870-PT or Form 870-LT as stated in the text of IRM 4.31.3.7.1.

4.31.3.7.3  (10-01-2010)
Settlement Agreements Received as a Result of Appeals Letters

  1. A Form 870-PT(AD) or Form 870-LT(AD) and Form 870-PT or Form 870-LT, when received for a key case in Appeals jurisdiction, must be accepted for the Commissioner by an Appeals officer in the CTF within 5 days of receipt in the CTF.

  2. Appeals settlement agreements may be executed by Revenue Agents GS-12 and above in the Campus TEFRA Function, or Appeals personnel in accordance with Delegation Order 4-19.

  3. Once accepted, forms listed in (1) above are processed as outlined in IRM 4.31.3.7.1 of this Handbook.

4.31.3.7.4  (06-04-2004)
Settlement Agreements in Docketed Cases

  1. In a docketed case, when processing a settlement agreement under 4.31.3.7.1, the notification to the TMP under 4.31.3.7.1.(5) must include the following:

    1. The identity of the parties to the settlement agreement and the date of the agreement;

    2. The year(s) to which the settlement agreement relates; and

    3. The terms of the settlement as to each partnership item, and the allocation of such items among the partners.

4.31.3.7.4.1  (10-01-2010)
Settlement Agreements Secured on District Court or Court of Federal Claims Cases

  1. Settlement Agreements are different for cases controlled by the Department of Justice (DOJ). The DOJ does not use standard closing agreements. DOJ enters into settlement agreements though an exchange of letters (offer and acceptance) rather than using Forms 870-PT, Form 906, or closing agreements.

  2. A settlement agreement with the Department of Justice converts partnership items to nonpartnership items and starts the one year period for assessment under IRC 6229(f). This generally waives deficiency procedures so that we do not have to issue an affected item notice of deficiency to assess any of the amounts agreed to in the exchange of letters.

4.31.3.7.5  (06-11-2013)
Execution of Agreements

  1. Generally, agreements must be signed by the partner of the key case partnership. This can be tricky in some circumstances. If there is any doubt on who should be signing an agreement, contact the local TEFRA Coordinator. See IRM Exhibit 4.31.2-11 for additional information about who should sign the agreement.

  2. For tax years beginning before June 28, 2002, parent corporations that are part of a consolidated group must sign agreements of subsidiary partners. Even if the subsidiary is the partner, the parent must sign since any tax will ultimately impact the parent's return. The format for the name on the parent's agreement will read, XYZ Corporation, on behalf of consolidated group including ABC Subsidiary.

  3. For tax years beginning on or after June 28, 2002 (see Treas. Reg. 1.1502- 77), agreements secured from consolidated groups for partnership and affected item adjustments, should have both the subsidiary partner’s and its parent’s signatures on the waiver. If a subsidiary, who is the actual partner under state law, insists on being the sole signatory on the waiver, the examiner should contact local area Counsel before executing the waiver. A subsidiary partner that is the TMP can solely sign an agreement as TMP in order to bind non-notice partners.

  4. If there are multiple subsidiary partners linked to a key case that have the same parent, then the form will need to be prepared and signed by the parent and the appropriate subsidiaries.

  5. For partners who are non-subsidiary corporations, trusts, or partnerships, the agreements should be signed by an authorized corporate officer, trustee, or TMP/managing general partner respectively. The title of the person signing should be included on the appropriate line on the agreement form.

  6. When countersigned agreements are received by the campus or countersigned by campus personnel, Letter 2513 will be completed along with a listing of the taxpayers who settled and their date of settlement. The letter and listing are used to notify the TMP as to what partners have agreed so the TMP can meet the legal obligation under Treas. Reg. 301.6223(g)-1(b)(1)(iv). Use Letter 1908 to send a copy of the countersigned agreement back to the partner for their records. If the partner's Letter 1908 is returned as undeliverable, the campus should research for a current address.

    Note:

    The title of Letter 1908 is "Transmittal Letter Agreed Form 870-P" , however, the language of the letter allows it to be used with any of the 870 agreement forms used in TEFRA.

4.31.3.7.6  (06-11-2013)
Acceptance of Faxed Agreements

  1. Consents to assess additional tax (Form 4549, Form 870, and others) of $250,000 or less can be accepted by fax if taxpayer contact has been made and the case history documents the date of contact and the desire of the taxpayer to submit the consent by fax. Consents to assess tax in excess of $250,000 should be secured with original signatures and delivered in person or by mail.

  2. For purposes of estimating tax for flow-through adjustments, the tax is figured by multiplying the partner's share of the adjustment by the highest tax bracket percentage. The estimated tax figure will be used for figuring the $250,000 tolerance for the acceptance of faxed agreements.

4.31.3.8  (10-01-2010)
H Freeze Release

  1. The campus will release the H freeze once a OYD is entered on all key case investors.

  2. On closing packages that impact all investors (i.e., court decisions, defaults, etc.) the H freeze will be released in 5 days.

  3. This process can take some time when agreements are being secured from taxpayers. Generally, the campus will execute agreements within 5 days and release the H freeze within 10 days. These time frames my not be met if the campus has questions about the validity of the agreement(s). If the execution of an agreement is delayed, the Local TEFRA Coordinator will be notified.

4.31.3.9  (10-01-2010)
Partial Agreements

  1. The Taxpayer Relief Act of 1997 passed by Congress on July 31, 1997 and signed into law on August 5, 1997 changed portions of the TEFRA examination process. One notable change in particular provides that partial agreements can be secured for any settlements entered into after August 5, 1997. Partial agreements may be made for any tax year. By law, a partial agreement does not start the running of the one-year assessment date.

  2. In the normal processing of an agreed TEFRA case, once the partner has signed a settlement agreement form, the partnership items convert to nonpartnership items. The conversion of items from partnership items to nonpartnership items starts the running of the one-year assessment statute date. The statute of limitations for assessment of the newly converted nonpartnership items will not expire before the date which is one year after the date on which the conversion occurs.

  3. Since partial agreement cases do not have "one-year" statute dates, report writing may be delayed due to processing of cases that have established "one-year" statute dates. However, the idea behind a partial agreement is to have that portion of the deficiency assessed as soon as possible. TEFRA partial agreements may be secured by agents in the field or by an Appeals Officer during the appeals process.

    Note:

    It is very important to remember when securing partial agreements and forwarding them for processing, they MUST be readily identifiable as a TEFRA partial agreement. This is critical.

  4. If the area negotiates a partial agreement with the TMP, partial agreements will be secured from all of the notice partners. If there are non-notice partners, the special language will be used on the Form 870-PT signed by the TMP to bind all of the non-notice partners.

  5. TEFRA partial agreements must have the annotation "Partial Agreement" (hand written, typed or stamped) on all pages of the Form 870-PT Form with the following statement added:

    This partial agreement becomes effective upon execution by the Commissioner of Internal Revenue or his delegate. It does not settle all of the partnership items. The remaining unsettled partnership items as well as any unsettled penalty, addition to tax, or additional amount that relates to an adjustment to a partnership item will remain subject to determination under the partnership-level administrative and judicial procedures. The period of limitations for assessing any tax attributable to the settled items shall be determined as if such agreement had not been entered into.

  6. The statement above will also be entered on the schedule of adjustments page. The Form 886-Z (or equivalent) will also be identified and marked as a partial agreement. The Form 3210 used to transmit the package will also be identified and clearly marked, "TEFRA Partial Agreement" and "Special Processing Required" to reflect that the attached package is for a partial agreement.

  7. The area will monitor the receipt of the signed partial agreements and retain them until all are received. The area will sign for the Commissioner and send all of the partial agreements to the key case CTF for processing at one time. The local TEFRA Coordinator will sign the agreements and not the CTF, since the area is fully aware of the agreed issues. Prior to signing for the Commissioner, the area will ensure both the notation "Partial Agreement" and the statement above are on all of the forms and attachments as required.

  8. When the partial agreements are submitted to the CTF unit for processing, a 60-day package will be included that includes all agreed and unagreed items. The CTF will send the all inclusive 60-day package to all of the investors, whether partially agreed or not, because all adjustments must be included in the schedule of adjustments.

    1. When the signed partial agreement forms are received by the CTF, they will be processed as normal, but after photocopying, the "Partial Agreement" notation and the statement at the bottom will be highlighted (preferably in yellow). If the agreements have not been signed for the Commissioner by the area and have not been marked " Partial Agreement" , but it is known that they are in fact partial agreements, the agreement forms will not be signed by the CTF. The agreement forms will be returned to the originator for reissuance. Subsequent modifications to agreement forms already signed by the taxpayer cannot be made. The CTF will give the partial agreement forms expedited handling. In lieu of entering a "one-year" date, the CTF will input a date that is 5 months from the acceptance date on the agreement forms. This will be done to ensure timely processing. Instead of inputting a "Y" on the PCS an "M" will be input. This ensures better control over these cases and will be used until a unique code can be obtained to indicate a partial agreement. There is currently an informal procedure in place to utilize the "M" as an indicator for partial agreements as well as for manual assessments.

    2. For these partial agreements only, the CTF will only be required to process packages for the investors and to notify the area. No TMP notification ( Letter 2513 or Letter 2514) will be required since the TMP is fully aware of who accepted the partial agreements. However, the taxpayer should be sent their copy with Letter 1908 if the area did not already send the taxpayer an executed copy. In most cases, the campus will send the taxpayer their executed copy with Letter 1908.

      Note:

      The title of Letter 1908 is "Transmittal Letter Agreed Form 870-P" , however, the language of the letter allows it to be used with any of the 870 agreement forms used in TEFRA.

  9. When the area submits the 60-day package for processing and the area has solicited partial agreements, the CTF cannot and will not process the package until all investors have signed and agreed to the partial report unless the area specifically instructs the CTF to do so. Advance coordination with the CTF in this situation is required. Keep in mind that an undue burden is placed on the CTF if not all of the partial reports have been signed and agreed. PCS won't generate a 60-day letter with a "one-year " date still remaining on the partner. The CTF will request the 60-day letters prior to inputting the "one-year" date for the partial agreements. If a 60-day package is not included with the partial agreements, the partial agreement package will be returned to the area.

  10. The 60-day package the area prepares and submits to the CTF will address all issues, i.e. both agreed and unagreed. The schedule of adjustments page will include all of the issues. The package will include all of the items listed in IRM 4.31.3.5.1 of this Handbook. The CTF cannot prepare a separate Form 870-PT to reflect the remaining flow-through items for those investors who previously agreed and a different, all inclusive, Form 870-P or Form 870-PT for those investors who did not agree to the partial report.

  11. When final closing packages are received from the area or Appeals, the CTF will check TSUMYP to ensure all investors were previously worked for the partial agreement. It is anticipated that no partner will have either a "one-year" date or " 11's" in the "one-year" date field when the final agreement is received. The CTF must pay particularly close attention to the TSUMY print to verify no partner has a "one-year" date with the TEFRA (T) indicator removed. In those instances the " one-year" date will not be changed. If the CTF is unsure of the research, the TEFRA Coordinator or technical personnel should be consulted for guidance. The campus report writers can compare the final closing package with any prior packages and/or reports to see if any issues were previously processed as partially agreed and prepare the final reports accordingly.

4.31.3.10  (10-01-2010)
One-Year Assessment Dates

  1. A one-year date is a statute expiration date that affects a taxpayer's account as the result of a TEFRA examination. It is exactly one year from the date a partner's partnership items became nonpartnership items. The only exception to the one year rule is if a taxpayer's partnership items convert on February 29 in a leap year. The one-year date in that instance would be February 28 of the next year and not March 1. (If a taxpayer's partnership items converted on February 28 of a year immediately preceding a leap year, the one-year date would be February 28 in the leap year and not February 29.) The Code (IRC 6229(f)) specifically states the period for assessment "…shall not expire before the date which is 1 year after the date on which the items become nonpartnership items." This date also applies to affected items that are computational in nature such as any percentage limitation based on adjusted gross income (i.e. deductible medical expenses change with a change to adjusted gross income or a change to a net operating loss carryback or carryover due to a change in adjusted gross income). Affected items that are factual in nature require a partner level proceeding and an agreement by the taxpayer. If the taxpayer doesn't agree to these affected items a 30-day or 90-day letter will be issued to the taxpayer. This partner level proceeding must be initiated before the expiration of the one-year date. Examples of factual affected items are penalties (for years ending before August 6, 1997 only; for years ending after August 5, 1997, penalties are treated as partnership items), basis issues, at-risk issues and passive loss issues.

  2. The one-year date is not 365 (or 366) days, but is exactly one year. The one-year date is easily determined. It is simply one year from the date the partnership items became nonpartnership items . The date partnership items become nonpartnership items is not as easily determined and it may occur in many ways. The most common event where items convert is when the taxpayer signs a settlement agreement such as a Form 870-PT, Form 870-LT or Form 906 and it is accepted by the Commissioner.

  3. Some items do not become nonpartnership items immediately upon completion of an event by either the taxpayer or the Service. There is a "waiting period" between an event date and the conversion date. It is not a "suspension" period in the normal context, but until this waiting period has passed, no assessments can be made. The event causing the conversion determines the length of this waiting period.

  4. Events that occur where partnership items will convert to nonpartnership items on the date of the event include:

    1. The Secretary mails the partner a notice that partnership items will be treated as nonpartnership items.

    2. The partner files suit under IRC 6228(b) after the Secretary fails to allow an AAR.

    3. The Secretary enters into a settlement agreement with the partner. (The date the Commissioner signs the agreement, not the taxpayer.)

    4. The Secretary fails to provide proper notice under IRC 6223(e).

    5. Special enforcement areas under IRC 6231(c)

    • Termination or jeopardy assessments.

    • Criminal investigations. (Not automatic, written notification of our intent to convert the partnership items to non-partnership items is required.)

    • Indirect method of proof cases.

    • Bankruptcy and receivership situations.

    • Request for prompt assessment.

  5. Events that occur where partnership items will convert to nonpartnership items on a date after the event occurs include:

    1. When the Service mails a partner a notice that such items shall be treated as nonpartnership items

    2. when a partner files suit under IRC 6228(b) after the Service fails to allow an AAR with respect to any such items,

    3. when the Service enters into a settlement agreement with respect to such items.

    4. When the Service fails to provide timely notice as required under IRC 6223.

  6. The simplest way to compute a one-year date (if the start of the one-year date does not occur on the same day as the final determination or conversion) is to use Julian dates. The date of the event is converted to a Julian date. The appropriate waiting period is added to the Julian date of the event. This new Julian date is converted back to a calendar date. This is the start date. The one-year date is one year after this start date.

    Note:

    As a matter of practice, the campuses will subtract one day from the true one-year date when the one-year date is entered on the PCS. This is done to help ensure the assessments are made prior to the expiration date.

  7. If the Julian date with the waiting period added to it is over 365 (366 for a leap year), then 365 (or 366) is subtracted from the total. (If the total is exactly 365, or 366 if the event occurs in a leap year, then no subtraction is made.) The remainder is then converted back to a calendar date. Here are two examples of the calculation of a one-year date for a Tax Court decision:

    Date decision entered April 9, 2001 November 30, 2001
    Julian date 99 334
    Add 90 days 90 90
    Subtotal 189 424
    If over 365 (366) - subtraction amount   365
    Julian date as adjusted 189 59
    Calendar date (also decision final date) July 8, 2001 February 28, 2002
    One year date July 8, 2002 February 28, 2003

  8. In the above example for the April 9, 2001 decision entered date, no assessment may be made before July 9, 2001. Also, generally, no assessment may be made after July 8, 2002. For the November 30, 2001 decision entered date, no assessment may be made before March 1, 2002 (There is no February 29 in 2002) and generally no assessment may be made after February 28, 2003.

    Note:

    This only applies to those taxpayers who did not previously sign an agreement form converting their partnership items to nonpartnership items. If they did sign an agreement form they would have had a one-year date computed from the date the agreement form was signed for the Commissioner.

  9. Below is a calculation table to assist in computing the One-Year Date.

    Calculation of One-Year Dates Where the start of the One-Year Date period is not Simultaneous With the Date of the Event
    Type of event (a)      
    Date of the event    
    Date of the event converted to a Julian date    
    Number of days for the waiting period (b)    
    Subtotal (Start Date)    
    Subtraction for subtotal over 365 (366) (c)    
    Julian date as adjusted    
    Julian date converted back to a calendar date    
    One year date (d)    

    1. The event may be:
      • A Notice of Conversion
      • A suit filed when the Service fails to process an AAR
      • A Signed settlement agreement
      • An Untimely Notice
      • A defaulted FPAA
      • A Tax Court decision
      • A District Court decision
      • A Court of Federal Claims decision
      • A United States Court of Appeals decision
      • A United States Supreme Court decision

    2. The number of days to add for the waiting period is:
      • For a defaulted FPAA - add 150
      • For a Tax Court decision - add 90
      • For a District Court decision - add 60
      • For a Court of Federal Claims decision - add 60
      • For a United States Court of Appeals decision - add 60
      • For a United States Supreme Court decision - add 60

    3. The Julian date for any year cannot be more than 365 (366 for a leap year). If this calculation yields a number in excess of 365 (366), then 365 (366) must be subtracted from the subtotal to compute the date in the next year.

    Note:

    As a matter of practice, the campuses will subtract one day from the true one-year date when the one-year date is entered on the PCS. This is done to help ensure the assessments are made prior to the expiration date.

4.31.3.10.1  (10-01-2010)
Eight Month Assessment (EMD) Dates

  1. Those cases that have affected items that fall under Chief Counsel Notice 2009-11 should have an assessment date posted that is 8 months after the final determination. This will allow the campus time to issue stat notices and make the related assessments before the actual OYD expires.

  2. To calculate the EMD, compute the OYD as above and subtract 120 days.

  3. The area submitting the closing package to the campus must clear note on the package that affected items must be stat notices and assessed prior to the expiration of the OYD.

  4. The package must clearly reflect that CC Notice 2009-11 applies.

4.31.3.10.2  (06-11-2013)
Suspension of OYD Due to Combat Zone

  1. See IRM 25.6.1.10.2.9.6 for guidance on identifying a taxpayer located in a combat zone, and the time period for making assessments.

  2. The statute for taxpayers in a combat zone is suspended during they time they are in the combat zone plus 180 days after they exit the combat zone.

  3. When the taxpayer is in a combat zone, the OYD will be extended on PCS for no more than 90 days. At that time, the taxpayers combat zone status will be checked again. If the taxpayer has not left the combat zone, the OYD will be extended again for no more than 90 days. This process will continue until the system shows the taxpayer has exited the combat zone and their return can be processed. Refer to IRM 25.6.1.10.2.9.6 to determine when assessments may be madeza.

4.31.3.11  (05-31-2005)
Undeliverable Correspondence

  1. NBAP (Notice of Beginning of an Administrative Proceeding):

    1. If any NBAP is returned as undeliverable, associate it and the envelope with the key case file.

    2. An undeliverable NBAP will not be reissued or re-mailed if the NBAP was mailed to the partner's address as reflected on the Schedule K-1 filed with the partnership return.

    3. If the undeliverable NBAP was mailed to an partner's address other than the address shown on the Schedule K-1, it will be mailed to the partner's address shown on the Schedule K-1.

      Reminder:

      All NBAP's originally sent by certified mail that are required to be re-mailed must be done so by certified mail.

  2. 60-Day Letter:

    1. If any 60-day letter to a partner is returned as undeliverable, the CTF will perform all necessary research to identify a new address.

    2. If research identifies a new address, the 60-day letter will be re-mailed; however, the original letter date must be used. Do not re-mail to the new address if the FPAA has been issued.

  3. Appeals Settlement Letter:

    1. If any Appeals Settlement letter to a partner is returned as undeliverable, the CTF will perform all necessary research to identify a new address.

    2. If research identifies a new address, the Appeals Settlement letter will be re-mailed; however, the original letter date must be used. Do not re-mail to the new address if the FPAA has been issued.

  4. FPAA (Notice of Final Partnership Administrative Adjustment):

    1. If the FPAA to a partner is returned as undeliverable and a new address was previously available but not used, reissue using certified mail with a new letter date and mail to the new address. Notify the area that initiated the request to issue the FPAA as of the new letter date.

    2. If the FPAA to a partner is returned as undeliverable and a new address is obtained subsequent to the initial mailing, re-mail the original correspondence using certified mail.

    3. The primary address to which an FPAA is mailed is the address on the partnership Schedule K-1. This is applicable to all notice investors and to the entity. A re-mailing to the partnership Schedule K-1 address, after a notice to the last known address is returned, may not meet the 60-day mailing requirement of IRC 6223(d).

4.31.3.12  (10-01-2010)
TEFRA Report Writing Procedures

  1. The following subsections provide guidance on TEFRA report writing procedures. Also refer to any other necessary IRM or Training Guides as needed.

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4.31.3.12.2  (06-04-2004)
Receipt of Closing Package

  1. The following subsections cover closing package procedures.

4.31.3.12.2.1  (06-11-2013)
Review Closing Package

  1. Upon assignment, the report writer should check the case file to determine if it includes the following items:

    1. The original tax return, or a copy;

    2. A Form(s) 870-PT, 870-LT, 870-PT (AD), or 870-LT (AD) with the schedule of adjustments, default documents, or other assessment documents;

    3. A Form(s) 886-S, 886-W, 886-X, or 886-Z showing the corrected ordinary income or loss; any basis or affected item adjustments; any penalty information;

    4. Form(s) 886-S, 886-W, 886-X, or 886-Z must be notated with the 6404(g) date, and whether an agreed closing package (executed Form 870-PT/LT) is the result of an FPAA or 60-Day Letter.

    5. IMFOLT (or BMFOLT) and TSUMY prints;

    6. Schedule K-1;

    7. Prior assessment information such as a Form 1040, partial assessments, or other changes to the partner's account;

    8. Any related tax returns for carryback and/or carryover issues; and

    9. Any related tax returns with Form 8615.

  2. The Report Writer should review the Closing Package by verifying the partner’s percentage on Form 4605-A to the percentage identified on the related partnership Schedule K-1. Math verify the adjustment amount, which is the difference between "as reported " and the "corrected figure" on Form 4605-A and compare to the amount on Form 886-Z. In addition, a complete review should be done of the entire Closing Package for any other information that would need to be included in the report of adjustments being issued to the taxpayer i.e. basis, at-risk, penalties, special allocations, etc. This information is not necessarily on Form 886-Z, but could be found anywhere in the closing package.

    Note:

    All adjustment computations need to be included in the package. The campus is not responsible for computing the adjustments amounts flowing from the key case to the underlying partners. In addition, those adjustments should be sufficiently explained so the report writers can make the requested changes to the partners.

  3. Verify 100% reconciliation of Schedules K-1 for all investors in the Key Case. The percentages for all investors listed on Form 886-Z should add up to 100%. Cross-reference this information from Form 886-Z with the partner's Schedule K-1 for discrepancies. Add the percentages in their entirety. Example: 37.2% + 42.8% + 10.1% + 9.9% = 100%

  4. Both Form 886-Z and Form 4605-A should have the same corrected amounts. Take the "corrected" amount from the "Totals" line on either Form 886-Z or Form 4605-A, Schedule of Adjustments, and multiply it with each partner’s "Percentage of Profit" from Form 886-Z, to arrive at the adjustment amount for that partner. Compare this verified adjustment amount to the amount identified on Form 4605-A for that partner.

    Note:

    There are times when 100% reconciliation of all investors may not be achieved. These instances occur when the Revenue Agent has determined "Pure percentages" , re-allocations, etc., will be applied. The closing package should clearly state the terminology "Pure Percentages, Re-Allocations" .

  5. The report writer also needs to ensure that the IRC 6404(g) date is notated on the Form 886-Z. The date is the earlier of the date the 60-day letter or FPAA was sent to the TMP. Generally, this is the same date that the letters were sent to the investors. If the field sends out a TMP letter, the dates will differ. In that case, the field will have to provide the letter date with the closing package.

  6. Agreed packages with Forms 870 included need to have a notation as to how the agreement Form 870 was received. This information is necessary to ensure the report writer has the information needed to determine the correct disposal code. Without that information, the report writer has no way of knowing whether the agreement form was secured via a 60-day letter or an FPAA.

  7. If any of these items are not present in the partner case file, the report writer must secure the information necessary for the preparation of the examination report. Depending on the statute, this may require returning the case file to another unit to secure the necessary information.

  8. The report writer must verify that the one-year assessment statute date is correct, and determine whether the IRC 6501 statute of limitations is still open.

    Note:

    Chief Counsel may need the flexibility to pursue a case under IRC 6501 rather than IRC 6229.

4.31.3.12.2.2  (06-11-2013)
Verify Statute

  1. For agreed packages, the one-year assessment statute date is one year from the date the Form(s) 870-PT, 870-LT, 870-PT (AD), or 870-LT (AD) was executed;

  2. For defaulted FPAA packages, the one-year assessment statute date is one year plus 150 days from the date the FPAA was mailed to the TMP.

  3. For court decisions, the one-year assessment statute date is no less than one year from the date the decision document is entered plus the waiting period as mentioned in IRM 4.31.3.9(b) (See IRM 4.31.3.10) or no more than one year from the date the decision becomes final.

  4. If the IRC 6229(a) statute is barred, a IRC 3999-T should be in the key case CTF administrative file. A copy of the Pattern Letter(s) P-430 and/or P-431 (pro-forma) should be in the barred statute package received from the key case area.

  5. A partner barred statute package will be prepared for the partner CTF, if any. The package will include a legible copy of Pattern Letter(s) P-430 and P-431, if applicable.

4.31.3.12.2.3  (06-11-2013)
Check for Penalties and Affected Items

  1. The report writer must determine whether penalties and/or affected items were recommended for the key case.

    1. For tax years ending after August 5, 1997, all penalties are determined at the partnership level and are agreed to on a Form 870-PT or Form 870-PT(AD).

    2. For tax years ending after August 5, 1997, all other affected items are still determined at the partner level and are agreed to on Form 870-LT or Form 870-LT(AD).

    Penalties and affected items that are agreed to on one of the above reports must be assessed via a computational adjustment. If affected items, or penalties for tax years ending before August 6, 1997, are not agreed to (default package, etc) then they must be proposed using deficiency procedures with Letter 3219, Notice of Deficiency, or Letter 2246, Affected Item Agreement Letter, if time permits. A computational adjustment can be made for disputed penalties not agreed to for tax years ending after August 5, 1997 after a defaulted FPAA or court decision.

    Note:

    For tax years ending after August 5, 1997, penalties that are computed on any affected-item deficiency must be assessed as part of the computational adjustment, and not included in the affected-item notice of deficiency.

4.31.3.12.2.4  (06-04-2004)
Schedule K-1 Reconciliation

  1. The report writer will reconcile the Schedule K-1 to the return.

  2. If the taxpayer has not reported income or loss consistent with the Schedule K-1, and has not responded with information, which explains the difference, the file will be referred to a revenue agent for consideration of the IRC 6662 penalty.

4.31.3.12.2.5  (06-11-2013)
Referring Complex Issue to the Field

  1. If, due to the complexity of the case, an employee believes that they cannot adequately prepare a partner audit report, the employee should consult with the campus TEFRA Coordinator. The campus TEFRA coordinator will provide the employee with assistance, or work with the appropriate Headquarters Analyst in order to have the case worked in the field. Campus personnel should make every effort to work all campus controlled investors at the campus. However, there are times when the complexity of the case will require assistance from the field. It is the complexity of the issues, and not the size of the case, that will dictate whether a case gets sent back to the field.

4.31.3.12.3  (06-11-2013)
Tier Report Writing

  1. Technical personnel in the CTF will prepare examination reports for investors that are flow-through entities (tiers). Tier files will be forwarded for report writing using the guidelines in the text (See IRM 4.31.3.5) of this Handbook.

  2. Tier reports must be written on a priority basis so as not to adversely impact on the one-year assessment statute date of the tier investors.

    Note:

    All BMF cases with tier investors need to be given priority over all other cases except for statute cases. It is important that multiple tier cases not be worked in normal statute date order. Doing so can create an unnecessary hardship on the BMF and IMF report writers as little time can be left on the one-year assessment date to work bottom tier investors. It also creates unnecessary expense as short statute cases require manual assessments.

  3. Form 4700-T or Form 4318, Examination Workpapers, may be used for report writing workpapers. The report writer will attach the Form 886-Z and other documents received from the key case CTF to the workpapers.

  4. The report writer will generate a Form 4605-A, which will reflect the adjustments to the tier from the key case. The report writer will prepare a Form 886-S or Form 886-W to reflect the correct amount of income or loss for each partner. (See IRM 4.10.8, Examination of Returns, Report Writing.) If the key case examination results in a no-change, no Form 4605-A will be prepared for the tier; however, a Form 886-S or Form 886-W must be prepared in order to transmit the results to those controlling the related investors.

  5. If a tier is a partner in more than one key case or is a key case in its own right, special care should be taken in preparation of the flow-through reports. The Form 4605-A and Form 886-S or Form 886-W must clearly indicate that related partner cases should be processed as partial assessments and suspended pending subsequent adjustments. Tier reports should also reflect whether penalties are applicable to the partners. If penalties are not applicable, it should be noted in the report.

  6. The tier CTF will forward a report package to the related partner CTF or field agent controlling the partner return within 30 days from completion of the flow-through entity report. The package will include the following:

    1. A Form 3210 which clearly reflects the tier name, EIN, and tax year; the partner name, TIN, and tax year; the one-year assessment statute date, and the type of package being sent;

    2. A copy of the schedule of adjustments for the tier which reflects the adjustments flowing through from the key case (including the Form 886-S or Form 886-W which lists the tier as a partner and the tier's correct distributive share of each adjusted item);

    3. A Form 886-S or Form 886-W showing the corrected distributed share to the related investors; and

    4. Penalty information (not used for tax years ending after August 5, 1997, because the penalties are included in the Form 4605-A). If penalties are not applicable, note that fact in the package.

    Note:

    If the tier report results in a no change, the campus may input the 11111111 to allow the field to close the case. The 11111111's should be removed with an 05-T if the partner is linked to other key cases.

  7. If less than three months remain on the one-year assessment statute date, the Team Leader of the tier CTF will contact the Team Leader of the related partner CTF to advise that a package with a short statute will be mailed. The TEFRA Coordinators can make contact instead of the Team Leaders.

  8. If the partner is a CIC corporation, other corporate specialty or Joint Committee case in Appeals jurisdiction, the Team Leader of the key case CTF will contact the Appeals Technical Guidance Coordinator - TEFRA to advise that a package with a short statute will be sent. The TEFRA Coordinator of the key case CTF may make the contact instead of the Team Leader. The Team Leader of the key case CTF will fax a copy of the package to the Appeals Technical Guidance Coordinator - TEFRA, or if too bulky, mail by overnight mail.

  9. After the packages are forwarded to the related partner CTFs, the tier return is closed with the Form 5344 prepared in accordance with the text of this Handbook (See IRM 4.31.3.12.6). If the tier return has other TEFRA linkages, it will be returned to suspense in the CTF files.

  10. The PCS CC TSCHG is used to update the one-year assessment statute date and assessment results as follows: 05-11111111$TIER,EC. If the AIMS status code is less than 80, time must also be entered. Since no assessments are made at the tier level, preparing multiple Form 8339 in the event of multiple key case adjustments is not necessary. Simply input one Form 8339, with an "S" in the key case EIN section when closing tier investors.

  11. All reports sent to investors must be sent with an appropriate letter.

4.31.3.12.3.1  (10-01-2010)
Tier Partners Requesting Partnership Level Assessments

  1. Tier partners can request to pay the tax due for all underlying partners. When such a request is made, the tier return must be referred to the field. Before a referral is made, the CTF must ensure that all partners will be subject to a deficiency. If any partners are due a refund, then the tier partners request should be denied.

  2. The field will need to work with their local counsel to secure a Form 906, and secure payment.

  3. When payment is secured, the CTF will be notified to close the underlying partners.

  4. The partners will be closed as agreed cases.

4.31.3.12.4  (06-04-2004)
Preparation of Partner Examination Report

  1. The following subsections provide information on the preparation of partner examination reports.

4.31.3.12.4.1  (06-11-2013)
Determining Adjustments

  1. The partner return will normally be adjusted to reflect the corrected amount shown on the Form 886-S , Form 886-W, or Form 886-Z, unless the adjustment document reflects an allowable loss and the partner did not report any activity from this flow-through return on the original return.

    1. In this situation, the report writer must consider the correspondence in the file, which explains the difference between the amounts shown on the Schedule K-1 and the return.

    2. If the partner did not respond to the inquiry or responded that the loss was not claimed because of a limited basis or previous execution of a Form 906, the examiner should allow no loss as a result of the examination of the flow-through return.

  2. TEFRA report writing is unique in that a separate report will be issued for each linkage if they close at different times. This is done so as not to jeopardize the one-year assessment statute date. Each report is prepared based on the income as adjusted on the prior report.

  3. The Form 4549-A should list each issue and the EIN of the partnership from where the adjustment came. The EIN provides a unique identifier to help the taxpayer understand where the changes came from. It also provides clarity when there are multiple partnership adjustments with similar names.

  4. Assessments must be made as soon as possible after the completion of the Form 4549-A. If there are penalties or other linkages that prevent a full closure from being made at this time, a partial assessment will be made.

  5. Form 8339, PCS Change, is used to update the one-year assessment statute date on PCS and to enter the amount of any partial assessment that is being made. A separate Form 8339 will be prepared for each linkage. In addition, more than one Form 8339 may need to be prepared if the partner's assessment is attributable to adjustments from more than one key case.

    1. If penalties or affected items are assessed at a later time than the tax, after update of the one-year assessment statute date to "11111111" and entry of the assessment amount, the one-year assessment date will be updated to the correct one-year assessment date for the penalties (YYYYMMDDXP) X is the applicable partner closing code (IRM 4.29 3.2.1.1.1) followed by the P. These entries are completed in sequence on the same Form 8339 (TSCHG, 05). This is the only time that 11111111s can be overlaid.

    Reminder:

    For tax years ending after August 5, 1997, penalties in a closing package are assessed as part of the computational adjustment.

  6. In reference to Accounts Receivable Dollar Inventory (ARDI), the procedures in IRM 4.20, Examination Collectibility Handbook, must be followed.

  7. Each time a report is written, the report writer will determine whether a partial or complete closure should be made.

  8. All reports sent to taxpayers must be sent with a Letter 4735, Notice of Computational Adjustment.

4.31.3.12.4.2  (06-11-2013)
Examination Report with Penalties and/or Affected Items

  1. The report writer will generate a Form 4549-A, Income Tax Examination Changes, for tax and penalties, if the taxpayer has signed Form 870-PT, Form 870-PT(AD). . Any 4549 must include the name, telephone number and the unique identifying number of the person to contact.

  2. Affected Items are handled similarly. Affected items must be agreed to via Form 870-LT or Form 870-LT(AD).

  3. The following table will help explain how penalties or affected items are agreed to by the taxpayer.

    Reports With Tax year ending before August 6, 1997 Tax year ending after August 5, 1997
    No Penalties or Affected Items Form 870-P, Form 870-P(AD) Form 870-PT, Form 870-PT(AD)
    Penalties Only Form 870-L, Form 870-L(AD), both Parts I and II must be signed. Form 870-PT, Form 870-PT(AD)
    Affected Items Only Form 870-L, Form 870-L(AD), both Parts I and II must be signed. Form 870-LT, Form 870-LT(AD), both Parts I and II must be signed.
    Both Penalties and Affected Items Form 870-L, Form 870-L(AD), both Parts I and II must be signed. Form 870-LT, Form 870-LT(AD), both Parts I and II must be signed.
  4. Each agreement needs to be reviewed carefully to determine the procedures to use. An FPAA is only issued with a Form 870-PT. Any affected items (and/or penalties for tax years ending before August 6, 1997) must be agreed to separately using deficiency procedures with Letter 3219, Notice of Deficiency.

  5. All reports sent to taxpayers that include a computational adjustment must be sent with a Letter 4735, Notice of Computational Adjustment. Computational adjustments include penalties determined at the partnership level. The RAR should include the following statement when such penalties apply: "During the TEFRA unified proceedings, it was determined that the addition to tax under IRC (penalty code section) will be asserted on any partner-level liability resulting from the partnership-level proceedings. Partner level defenses to such penalties can only be asserted through refund actions following assessment and payment. See the attached Form 886-A, Explanation of Items."

4.31.3.12.4.3  (10-01-2010)
IRC Section 6404(g), Suspension of Interest and Certain Penalties

  1. In the case of an individual who files a return on or before the due date for the return (including extensions), the Service has 36-months (18 months effective for tax years where the18 month period ended on or before November 25, 2007.) beginning on the later of:

    1. the date on which the return is filed; or

    2. the due date of the return without regard to extensions,

    in which to provide notice to the taxpayer specifically stating the taxpayer's liability.

  2. If notice is not provided to the taxpayer before the close of the 36-month period, (18 months for notices issued on or before November 25, 2007.) then the imposition of any interest, penalty, additions to tax or additional amounts that are calculated by reference to the period during which any failure relating to the return is suspended.

  3. The term "suspension period" means the period:

    1. beginning on the day after the close of the 36-month period (18 months effective for tax years where the 18 month period ended on or before November 25, 2007.) under (1) above; and

    2. ending the date which is 21 days after the date on which notice is provided to the taxpayer. A notice for purposes of IRC 6404(g) must contain sufficient information for the partner to calculate his or her portion of the partnership liability and the reason for the adjustment(s). Counsel has determined that sending such a notice to a TMP is sufficient notification. Generally, this will be the date the 60-day letter is sent to the TMP. In some instances, a 60-day letter may not be sent before the issuance of an FPAA. In that case, the date the FPAA is mailed to the TMP will be the date the notice is provided to the taxpayer.

      Note:

      If, as of November 25, 2007, the18 month period has closed and the Service has not provided notice to the taxpayer, interest and applicable penalties will be suspended beginning on the day after the close of the 18 month period and ending on the date that is 21 days after the notice is provided. In all other cases, interest and applicable penalties will be suspended beginning on the day after the close of the 36 month period and ending on the date that is 21 days after the notice is provided.

  4. The exceptions to the general rule for suspension of interest and certain penalties where the Service fails to contact the taxpayers are:

    1. any penalty imposed by IRC 6651;

    2. any interest, penalty, addition to tax, or additional amount in a case involving fraud;

    3. any interest, penalty, addition to tax, or additional amount with respect to any tax liability shown on the return;

    4. any interest, penalty, addition to tax, or additional amount with respect to any gross misstatement;

    5. any interest, penalty, addition to tax, or additional amount with respect to any reportable transaction with respect to which the requirement of IRC 6664(d)(2)(A) is not met and any listed transaction (as defined in IRC 6707A(c)); or

    6. any criminal penalty.

  5. The notice date must be annotated on the Form 886-Z of the partner closing package prepared by the CTF, and also annotated on the partner's Examination Report in the "Remarks" area with the following statement: "IRC 6404(g) does apply and notice was provided on (mail out date)."

  6. The earlier of the date the 60-day letter was sent to the TMP or the date the FPAA was sent to the TMP will be the IRC 6404(g) date. That date will apply to all notice or non-notice partners directly or indirectly invested in the partnership.

  7. TC 971 with Action Code 064 will be input on Master File for the identified cases to record the notice date. Master File will automatically compute the interest with only one notice date. Cases with additional notice dates will require manually computed restricted interest (TC 340).

  8. All IRC 6404(g) cases where an assessment is being made will require special instructions on Form 3198. If another assessment is necessary, it must again be stated whether IRC 6404(g) applies, and if it does, the notice date for the subsequent assessment must be entered in the "Special/Restricted Interest Features" section of the Form 3198.

4.31.3.12.4.4  (06-04-2004)
Completion of Workpapers

  1. The report writer will complete Form 4700-T, Examination Workpapers, on all cases (see IRM 4.10.9, Examination of Returns, Workpapers) to reflect the partner's applicable adjustment from the flow-through return. The report writer will attach Form 886-S, Form 886-W, or Form 886-Z, and other documents received from the key case CTF, to the Form 4700-T as part of the workpapers.

4.31.3.12.4.5  (06-04-2004)
Innocent Spouse Relief - TEFRA

  1. Innocent spouse requests for relief from TEFRA proceedings will be considered only after there is a final determination concerning the treatment of partnership items (e.g., a settlement is entered into, or the decision of the court becomes final). In addition, an innocent spouse request for relief will be considered for each assessment made, rather than limiting requests to one for each tax year.

4.31.3.12.4.6  (02-29-2008)
Passive Activity Losses (PAL)

  1. Examiners need to ensure that all applicable forms are completed when computing the PAL adjustments. The Form 8582 worksheets do not need to be completed for all cases, but should be completed when needed. For example, they should be completed to communicate changes to the taxpayer in the case of dispositions or PAL carryovers.

4.31.3.12.4.7  (02-29-2008)
Carryover/Carryback Adjustments

  1. Case files for carryback and carryover years need to have copies of the workpapers from the source year supporting the adjustments. Adjustments such as Schedule A (contributions), NOL, possibly credits and PAL Credits would also require the closing documentation from the source year and computations for any carryback or carryover.

  2. When there are PAL carryovers, for example, the case files for those years need to have all of the necessary work papers to support the PAL adjustment. The carryover case file should have the closing documents from the source year as well as the Form 8582 reflecting the PAL carryover changes. Without the source documentation, there is nothing in the carryover year file to support the changes. This information is necessary in the event a subsequent taxpayer inquiry is made.

4.31.3.12.5  (06-11-2013)
Processing of Adjustments

  1. If there are no other TEFRA linkages on PCS, the return is sent for final closure. If TEFRA linkages are present, a partial assessment (AMCLS F) is made, and the return file is suspensed pending completion of the other related partnership examination(s).

  2. Form 5344, Examination Closing Record, is prepared by the partner CTF to process partner or shareholder return flow-through adjustments each time an executed Form 870-PT, Form 870-LT, Form 870-PT(AD), or Form 870-LT(AD) , defaulted FPAA, or court settlement is received by the partner CTF from the key case CTF.

    1. A copy of the Form 5344 will remain in the file until all flow-through issues have been resolved.

    2. The closing function will input the PCS CC TSCLS as part of the final AMCLS E procedure. See IRM 4.4, AIMS/Processing Handbook, for general instructions.

  3. Some exemptions to the Form 5344 preparation and processing are:

    1. Adjustments received for partner returns that are linked to more than one partnership return will be processed individually as "Partial Closures" each time a flow-through adjustment is received (See IRM 4.4, AIMS/Processing Handbook);

    2. Only one TC 30X per week per module can be accepted at Master File; one exception is when the adjustment received is for the last linked flow-through entity; in this situation the adjustment will be processed as a final closing;

    3. Adjustments received for partner returns with no other issues or linkages are processed as final closings;

    4. TEFRA assessments must be separately identified to ensure proper Master File identification; place the word TEFRA at the top of the Form 5344.

4.31.3.12.6  (06-11-2013)
Completion of Form 5344 – Examination Closing Record

  1. Special attention must be given to certain entry items on Form 5344.

    1. Notate "TEFRA" on the top of the Form 5344, or per local instructions.

    2. CC TSCLS - This block should be checked when an partner return is linked on PCS.

      Note:

      This portion will only be completed at the time of the final closing.


    3. Item 8 - Agreement Date (partial or final closings). This entry will be completed for tax years beginning after August 5, 1997. (IRC 6601(c).) If an agreement is secured on Form 870-PT, Form 870-LT, Form 870-PT(AD), or Form 870-LT(AD) , the agreement date is the date the form is signed on behalf of the Commissioner. If an agreement is received using normal deficiency procedures (affected items requiring partner level agreement), the date the agreement was received is required to be entered if the disposal code is 03, 04, or 09 and Item 12 contains an increase in tax and the MFT is 02, 05, 30, 51 or 52. See IRM 4.4.12.4.18. For tax years beginning before August 6, 1997, cases will be closed using disposal code 08 and no agreement date.
      IRM 20.2.5.16, Types of Deficiencies that do not Receive an IRC 6601(c) Suspension of Interest, explains that agreed cases closed with a Form 906, Closing Agreement on Final Determination Covering Specific Matters, and Form 870 or Form 870- AD, do not receive an IRC 6601(c) suspension. These situations are usually settlement initiative cases. Even though such cases are not entitled to an underpayment interest suspension under IRC 6601(c), (also known as 870 Waiver Plus 30 Days), the taxpayer may be entitled to an underpayment interest suspension under IRC 6404(g). See IRM 20.2.7.6, Section 6404(g) Interest Suspension-Background.
      For TEFRA adjustments with return due dates ending on or before August 5, 1997, See IRM 20.2.5.9.4. If the closing package will result in an adjustment that will fall below tolerance, a closing package should be sent

    4. Item 9 - Priority Code. Priority Code 05 should be used on all non-flow through cases unless another priority code applies. PC 05 is not needed on flow through returns.

    5. Item 13 - Disposal Code. Cases closed no change should use disposal code 01 or 02. The adjustment amount on the Form 5344, Examination Closing Record, should be blank. Cases closed agreed or unagreed will generally use disposal codes 03, 04, or 09. The adjustment amount on the Form 5344, Examination Closing Record, requires an entry other than zero. If you have a situation where the adjustments made to the entity net to zero, enter $1.
      01 - No Change with Adjustments
      This code should be used when changes are made to the entity's ordinary income, loss, or separately stated items reflected on the return or Schedule K-1, and an partner's return is adjusted as a result of the flow-through examination but result in no tax. This would include adjustments to basis, at-risk, passive loss rules, taxable loan repayments, or adjusting the partner's return to match the Schedule K-1 flow-through amounts. This also applies to de minimis adjustments and most tiers that are not a straight no change.

      Note:

      An audit report is not required for cases closed below the tax tolerance in the Campus TEFRA Function (CTF). An exception will be when the tax changes impact a prior or subsequent tax year (NOL, PAL, etc.) or if the investor is linked directly to the key case and would not otherwise receive notification. Any investor that was issued an NBAP, but not receiving an audit report, should be sent a no change letter as a matter of closure and good customer service.


      02- No Change
      In general, this code should be utilized when the examination results in no changes to the entity or any partner. It would also be appropriate to use an 02 on a tier if you make adjustments to one of the partner's returns as a result of compliance checks which are not related to the flow-through examination. An 02 could be used on a partner in situations where the partnership was adjusted, but the partner is not adjusted due to special allocations. This code applies to tiers that are no changed as well.

      Note:

      partner work papers are not needed with streamline no change cases. When the flow-through entity is a no-change, and all partners will be no-changed, streamline no-change procedures can be implemented.


      03 - Agreed Before 60-Day Letter
      Used when agreements are secured after the closing conference and before issuance of a 60-day letter or an FPAA.
      04- Agreed After the 60-Day Letter
      Used for 1998 and subsequent TEFRA agreed cases (with or without penalties) with an agreement date.
      08 - Other
      Used for 1997 and prior TEFRA agreed cases (with or without penalties). Also used for AARs and stipulated decisions.
      09 - Agreed
      Applies only to returns if an agreement is received after the issuance of a 90-day letter, or FPAA.
      10 - Default
      Applies only to returns if the taxpayer fails to file a petition or sign an agreement after the issuance of a 90-day letter or FPAA, or the notice goes unclaimed by the taxpayer.
      •11 - Petitioned
      (11 is considered appealed on the AIMS tables) - Applies only to returns if the taxpayer petitions court after the issuance of a 90-day letter or FPAA. Not valid with MFT 01, 04, 09–12, 17–19, 71, 72, or 80.
      13 - Undeliverable - Notice of Deficiency
      32- Survey After Assignment
      Used with carryback/carryover years where the return was order in for potential issues, but was not needed. For example, If a return was needed to determine the amount of a carryforward adjustment impacting a later year, but not impacting that return, the return should be closed DC 01. DC 32 should only be used only if no analysis of the return was conducted. For example, carryover years were secured for potential capital loss carryover adjustments but the key case exam did not change capital losses. In that case, the return would be closed DC 32.

    6. Item 14 - Statute Extended to Date (partial or final closings). Because of the various situations that can exist on TEFRA closures, care should be used to ensure that the correct information is shown on the database.
      •Partial Closure - On partial assessments, after the partial closure has been completed, the statute date on AIMS must be corrected to the original date. If AIMS has "872-A" as the statute date, the Statute Extended to Date should reflect the one-year assessment statute date. On partial assessments, after the partial closure is completed, the statute date on AIMS must be corrected to "872-A" . If the statute date on AIMS contains alpha characters in the statute date, such as BB, DD, or HH, that date must be updated to the one-year assessment statute date. On partial assessments, after the partial closure is completed, the statute date on AIMS must be corrected to the appropriate alpha code to reflect the true condition of the statute date, and prevent the case from showing as an action item on the AIMS 4.0 listing. Use the later of the One Year Date or IRC 6501 date. NEVER shorten the taxpayer’s . To compute the ASED after a notice of deficiency, refer to IRM 4.8.1-5.
      •Full Closure - If the IRC 6501 date has sufficient time remaining to make the necessary adjustment, no entry will be required. If the IRC 6501 has insufficient time remaining to allow an adjustment to be made, or the IRC 6501 has expired, the Extended to Date should reflect the one-year assessment date. Use the later of the One Year Date or IRC 6501 date. NEVER shorten the taxpayer’s .
      •No Change or GII Closure Cases - Use the one-year assessment date or IRC 6501 , whichever is later.

    7. Item 28 - Examiner's Time (final closing only). Enter the technical time spent processing the return. This will include the report writing time and any technical research time. Local procedures must be developed to record the cumulative time applied to each return by the CTF technical employees so Form 5344 will record all time applied (except the 631 or 632 "below the line" time) by technical employees, whether in the area or in the CTF. Campus technical employees are defined in IRM 4.31.1.

    8. Item 30 - Examination Technique (final closing only). See IRM 4.4, AIMS/Processing Handbook.

    9. Item 31 - Examiner's Grade (final closing only). Enter the grade of the examiner that corresponds to the employee group code entered in Item 29.

    10. Item 34 - Adjustment Amount. Not used with Disposal Code 01 or 02.

  2. See IRM 4.4, AIMS/Processing Handbook, for instructions on reporting adjustments. Items 12, 18, and 34 may be involved.

  3. In an instance where a partner must be fully closed after a partial assessment, and no other action has been taken, that partner needs to be closed using the disposal code of the most recent partial closure.

4.31.3.12.6.1  (06-11-2013)
Case File Assembly

  1. After completion of the required reports, Form 4549-A or Form 1902-B and closing documents, Form 5344 and Form 8339 (if return is linked on PCS), the report writer should prepare the case for processing by clerical personnel. See IRM Exhibit 4.4.1-8 - Cases sent for input and then to files. The case file should contain the following documents:

    1. A Form 5344; (required)

    2. The taxpayer's return or an electronic copy; (required)

    3. Original Schedules K-1, (if present)

    4. If an amended or duplicate return is included in the case file, staple the amended or duplicate to the back of the original return or the electronic print.

      Note:

      Old year amended returns will have their own DLN. If so, these need to be refiled separately. Please inspect old year amended returns for DLNs.

    5. Form 5546 or AIMS print; (required)

    6. An Examination Report (Form 4549-A, a PC Report, or computer report input documents) or No-Change Letter;

    7. Other correspondence in descending date order; (if present);

    8. Form 4700-T attached to each closing package, work papers, closing package, unless stored electronically on RGS/CEAS. If electronic, that fact must be noted on history sheet.

    9. current TSUMY attached to the top and Schedules K-1,in descending date order of OYD’s (required);

    10. A Form 8339, or in lieu of the Form 8339 a TSCHG print notated with the name of the person who did the input, for each key case adjustment impacting the assessment; (required)

    11. Miscellaneous papers; (if present)

    12. Form 895; (if present)

    13. Form 3198; (if present)

    14. Transcripts if pertinent to the exam and

    15. History Sheet. (required)

  2. The report writer will indicate on the history sheet what letters should be issued or any additional actions that may be required. The history sheet will also indicate the appropriate closing action. The report writer is responsible for instructing clerical and closing operators of the appropriate actions required based on the type of closure.

    Note:

    For cases closed no change (DC 02) through the GII, cases will include the following:
    Form 5344 on top of the file, and in any order;
    Return or electronic copy
    Original Schedules K-1, (if present)
    Amended return stapled to the back no DLN;
    History Sheet;
    Form 5546 or AIMS print;
    Form 8339 or TSCHG print;
    Closing Package, unless stored electronically on RGS/CEAS. If electronic, that fact must be noted on history sheet.
    TSUMYI Print
    Efforts should be made to discard of any unneeded prints in the folder

4.31.3.12.7  (06-04-2004)
TEFRA Assessment Prior to NonTEFRA Closing

  1. For purposes of the discussion below, the partner's division is determined by the Primary Business Code (PBC) where the partner is being worked, not the PBC of the key case.

4.31.3.12.7.1  (10-01-2010)
TEFRA Investors in SB/SE, W&I, or Appeals

  1. If the TEFRA partnership examination is completed prior to Examination or Appeals completing action on the nonTEFRA issues, the partner CTF will make a partial assessment based on the copy of the return.

  2. A copy of the examination report, any other workpapers relating to the flow-through adjustment, and Form 5344 will be forwarded to the function working the nonTEFRA issues. If there are no unresolved TEFRA links, see (5) below.

  3. All investors being worked in the field that are not in a 3XX PBC will have a report prepared by the campus as explained above. The agent in the field should be contacted about the TEFRA closure to determine the status of the case. The agent may want to incorporate the TEFRA adjustments into the RAR, or wait for the campus to make their adjustments.

  4. When other TEFRA linkages exist, the partner file will be returned to suspense after the partial assessment. The partner CTF will retain copies of Form 5344 and Form 4549-A each time an assessment is made until the nonTEFRA examination is closed. This is necessary so that each deficiency is computed on the revised taxable income.

  5. When no other TEFRA linkages are open, but another function has control of the partner return, the CTF will forward the complete file to the function that has control of the partner return. The file will be clearly flagged with a Form 3198, Special Handling Notice, showing the special instructions: "TEFRA linkage has been closed by the Campus TEFRA Function. Report enclosed reflects those adjustments and has been provided to the taxpayer. When other issues are resolved, please list PCS linkage on reverse of Form 5344. The TEFRA assessment(s) has (have) been made" .

4.31.3.12.7.2  (05-31-2005)
TEFRA Investors in LB&I

  1. Corporate TEFRA investors that are in LB&I and are open in field exam will be worked by the field when TEFRA issues are complete before closure of the case. Due to the complexity of the returns, all LB&I agents working corporate investors for nonTEFRA issues will prepare their own TEFRA adjustments. LB&I agents need to be made aware of the TEFRA one-year assessment date and the need to make the adjustments promptly when TEFRA issues are complete before closure of the case.

    Note:

    Appeals will prepare flow-through adjustments for corporate returns with an activity code of 219 or above, CIC corporation, and corporate specialty returns, which are any corporate return filed with a Form 1120 followed by a letter (for example, Form 1120L life insurance company) except Form 1120A, Form 1120S or Form 1120X. Appeals will also prepare flow-through adjustments for Joint Committee returns. Non-corporate returns, and corporate returns with activity codes below 219, with flow-through adjustments, will have to be computed by the campus and forwarded to Appeals.

  2. A corporate partner in LB&I is any corporate partner being worked in field exam that is in a 3XX PBC. The fact that a partner is linked to an LB&I key case does not make it an LB&I partner.

  3. Team Managers should be contacted before a package is sent to the field. The reason for contact is that even if AIMS shows they have control, they may have already sent the case for closing. If the case was closed, contact the local TEFRA Coordinator to locate the case.

  4. Once the package is sent to the field and the campus receives an acknowledgment from the field on a Form 3210, the field will assume the responsibility for monitoring of the one-year date.

4.31.3.12.8  (06-04-2004)
Processing Partial Agreements

  1. When the CTF report writing or technical unit receives a partial agreement, the agreement will receive expedited priority treatment.

    1. The report will be prepared and mailed immediately.

    2. Normal partial report procedures will apply. (See IRM 4.31.3.9)

    3. Form 8339 with 11111111, amount and time will be input.

    4. Immediately after the input of the 11111111, amount and time, an 05-T and a 22-D will be input. This will allow for the next one-year date to be input when necessary and removes the package received indicator.

    5. Since no actual one-year date exists, manual processing is not needed as with other cases closed with less than 60 days remaining on the statute.

    6. After the partial assessment document is returned, the partner file should be suspensed.

    7. Appropriate documentation must be in the file to identify the existence and processing of prior partial reports before resuspensing the case.

  2. When the CTF report writers receive the final closing package for the partner, they will compare it with any prior packages and/or reports to determine if any issues were previously processed as partially agreed and prepare the final reports accordingly.

4.31.3.12.9  (06-04-2004)
Non-Filer TEFRA Closing

  1. If a return was not filed by a partner and one has not been secured by the CTF, and a one-year assessment date was entered on PCS, the CTF should not assess the tax on the TEFRA adjustment unless there is evidence that the partner's taxable income would be increased by the partnership adjustment.

  2. If such evidence does exist, the CTF report writer will assess the tax on the TEFRA adjustment by applying the highest tax bracket applicable for the tax period to the amount of the adjustment without benefit of exemptions or deductions. This assessment will be made on non-Master File and the partner file closed.

  3. This procedure will not be applicable if the partnership items have previously converted to nonpartnership items other than due to a settlement. In that situation, a Letter 3219, Notice of Deficiency will be issued within the one year period.

4.31.3.12.10  (06-11-2013)
Closing Employee Returns with TEFRA Links

  1. Employee Accounts are indicated by the flashing "E" Employee indicator on AIMS specifics.

  2. Prior to closing the case will be forwarded to the CTF PCS Coordinator.

  3. The PCS Coordinator needs to provide Exam Planning and Delivery/ Examination Return Selection (EPD/ERC) with the TIN, Tax Year and a brief explanation of the adjustment. A contact person can be found at http://mysbse.web.irs.gov/exam/tip/emplaudit/contacts/11076.aspx.

  4. EPD/ERC will give written permission to change the audit code. This will allow the case to be closed as normal.

4.31.3.12.11  (10-01-2010)
No-Change Partner Returns

  1. Partner tax returns can be no-changed under the following circumstances:

    If Then
    The TEFRA key case is no changed, i.e., (a Letter 2064 was prepared by the area). The key case CTF will issue a no change FPAA (Letter 2064(SC)) to the TEFRA notice investors. Because investors have been notified of the results of the examination, the partner CTF will prepare no Form 4549; however, workpapers, Form 4700-T, Form 5344, and Form 8339 will be required, and the file will be appropriately noted.
    The TEFRA key case is no-changed, but the Technical Support/QAB prepared a Letter 2621. The key case CTF will not issue an FPAA to all notice investors. A copy of Letter 2621 will be placed in the file of TEFRA partnership investors, all of whom must be fully linked on the PCS. The TMP is required to notify the investors of the results of the examination. Because investors have been notified of the results of the examination, no Form 4549 will be prepared by the partner CTF and returns are closed No Change (No Change with Adjustment is not valid for this procedure). Form 5344, and Form 45498339 will be required, and the file will be appropriately noted. No change packages will be provided to partner CTFs, and a copy of the final examination report and Letter 2621 will be maintained in the key case administrative file.
    The TEFRA key case examination results in a material change, but it does not change the partner's tax liability in any year (including carrybacks or carryovers for NOL, credits, etc.). The partner CTF will prepare a Letter 2083(SC), workpapers, Form 4549, and other documents as outlined in the text of this Handbook (See IRM 4.31.3.12.). Form 5344 is prepared to process as a partial adjustment so that the Reference Code 888 is updated to reflect the correct amount of adjusted gross income on the return. Reference Code 886 is updated to reflect the correct amount of taxable income. A copy of the Form 4549 and the closing document must remain in the file. If future changes result in a need to recompute the tax liability, these adjustments will be included in the computation.
    The key case adjustments result in a de minimus change to the partner's tax liability. The partner CTF will prepare workpapers, and other documents as outlined in the text of this Handbook (See IRM 4.31.3.12). The Form 5344 will reflect no adjustment.

    Note:

    Any taxpayer that was issued an NBAP should be sent a no change letter as a matter of closure and good customer service.

4.31.3.12.11.1  (10-01-2010)
Special Processing for Tax Changes over $10 Million

  1. IRM 4.4.18.5 should be followed when adjustments result in a Balance Due (this includes interest and penalties) over $10 million.

  2. Each year stands alone when determining the $10 million threshold.

  3. For each tax period, where the Balance Due (this includes interest and penalties) is $10 million or more, a copy of the Form(s) 4318, or Form(s) 4700, and the examination report(s) is to be sent to the Office of Unpaid Assessment Analysis. This information will be sent by Centralized Case Processing after the case has been closed.

  4. If the case is closed by the CTF, then the information should be faxed to the Office of Unpaid Assessment Analysis.

4.31.3.12.12  (06-04-2004)
Quality Responsibilities

  1. The CTF should ensure that an acceptable level of quality on the CTF reports is maintained.

  2. A sample review for quality must be made. The sample review will be analyzed to detect error trends, and recommendations for corrective action will be made. Errors will be recorded on Form 3990, Reviewers Report.

4.31.3.12.13  (06-04-2004)
Barred Statute Reports

  1. The partner CTF is responsible for determining the correct assessment statute dates on all partner inventory and immediately identifying cases with barred statutes. Responsibility for the preparation of the Form 3999, Statute Expiration Report, or Form 3999-T (Statute Expiration Report for TEFRA Key Case), in tier situations, and the related processing procedures are found in IRM 25.6.14, Statute of Limitations, Barred Assessments.

4.31.3.12.14  (06-11-2013)
Erroneous Refunds

  1. A refund issued in error can be reassessed if the partnership or partner assessment is still open. Erroneous refund procedures are needed when the assessment statutes have expired.

  2. When an erroneous refund is identified, the identifying area needs to complete the Form 12356 and send it to the appropriate Accounting Function.

  3. The form should be sent to the coordinator or their manager per IRM 3.17.80-4.

4.31.3.12.15  (06-04-2004)
Training

  1. The employees of the CTF are to receive standardized training, which will include the areas of the PCS, AIMS, report writing, and necessary TEFRA law needed for their positions, no later than six months after their selection.

4.31.3.12.16  (06-04-2004)
Reports and Accomplishments

  1. The Partnership Control System (PCS) generates the administrative reports used to monitor the suspensed returns and the related key cases.

  2. The level to which unit and dollar accomplishments are distributed is now restricted to the National Headquarters and the area.

4.31.3.12.16.1  (05-31-2005)
Reports

  1. Each CTF will use PCS reports to monitor linked returns. Specific information is provided on PCS reports in IRM 4.29 Partnership Control System (PCS) Handbook. The CTF personnel should use the PCS Handbook if they have questions about PCS generated reports.

  2. Cases in status code 34, Employee Group Code 58XX, or with a "T" indicator will be included on the CTF PCS reports. These three criteria, although not all three for every report, are also used to determine CTF staffing levels and for specific measurements.

    1. All investors linked to TEFRA key cases will be listed on PCS Report 22-3, which should be worked quarterly or monthly for updates and filed in the key case administrative folder.

    2. TEFRA related partner or shareholder returns that are in area office possession for examination of nonTEFRA issues will not be in the CTF physical inventory.

    3. However, these returns (not Joint Committee, CEP, or other corporate specialty cases) are sent to the CTF for suspense if the nonTEFRA examination is completed before the TEFRA entity examination.

    4. Centralized Case Processing will update the case to Employee Group Code 5817, Status Code 34, and the Primary and Secondary Business Codes before shipping the case.

    5. When received the Employee Group Code should be updated to any other valid 58XX employee group code.

4.31.3.12.16.2  (06-04-2004)
Accomplishments and Inventory

  1. Accomplishments for CTF closures where the report writing was done in the campus will be closed in employee group code 58XX according to the designated breakouts.

  2. The results for returns are found on AIMS Table 38 using Special Project Codes 013, 015, 101, 102, 103, 104, 106, 107, 109, 114, 118, 121, and 122; the following codes are no longer used: 105, 108, 110-113, 115-117, and 119-120.

    1. PCS Report 8-3 reflects CTF TEFRA results by links closed; it also reflects inventory as of the report period for Report Writing and Suspense.

    2. PCS Report 2-2 is the weekly Report Writing TEFRA inventory; the inventory differs from the PCS Report 8-3 in that returns with a package indicator other than "Y" are not included in the 2-2 Report. Also included on the 2-2 Report are returns with one-year dates (other than 11111111) and where the package indicator is blank.

    3. Report Writing inventory is determined from those returns that have a numeric one-year date in the one-year date field.

    4. Suspense inventory is determined from those returns where the one-year date field is blank.

    5. Report 8-3 is a weekly report, and Table 38 is a monthly report.

    Note:

    Remember: PCS reports deal with linkages; AIMS Tables deal with returns.

4.31.3.13  (06-11-2013)
Key Case Administrative File Suspense

  1. The key case administrative file remains filed in the TEFRA closed key case files for a minimum of 18 months. This does not apply if the key case was no changed. After 18 months, if there are no open partners, all contents, which are not a duplication of the key case return file, are sent to the Federal Records Center for association with the key case return.

    Note:

    The key case is not closed, and the 18-month period does not begin, until all investors have one-year dates, the "H" Freeze is removed and Form 8339 is entered to reflect an item 08, Partnership Adjustment Amount, entry.

Exhibit 4.31.3-1 
Form 8340, PCS Establish or Add

http://publish.no.irs.gov/FORMS/INTERNAL/PDF/62478A06.PDF

Exhibit 4.31.3-2 
IAT Tools

The following table contains IAT Tools must be used when appropriate.

ID Number Tool
10 ESTAB
848 Fill Forms
973 Refund Suite
984 Quick CC
1043 Letters

The following table contains other IAT Tools that may be useful in working TEFRA cases. These tools should be considered for use when appropriate. This list is not all inclusive. Check the IAT Tools web site for other tools.

ID Number Tool
1 Case Monitor
3 My Info
12 Closures
16 CCPE Research
138 Search 6209
215 L90 Day Prints
366 TC 520-530 Search
435 CCPE_Letters
474 IBTF Batch Process
496 Exam Batch
547 ICE
675 BOD Code
961 Manager Tool
975 TFRP Calc
983 Phone Number
985 New Name Search
1036 FSRT
1075 Address

More Internal Revenue Manual