4.31.3  TEFRA Examinations - CTF Procedures

Manual Transmittal

June 11, 2013

Purpose

(1) This transmits IRM 4.31.3, Pass-Through Entity Handbook, TEFRA Examinations - CTF (formerly ESU) Procedures. This section explains the campus TEFRA procedures necessary for working a TEFRA key case entity and the related investors. It explains the controlling and linking of the partner returns, notice and closing package procedures, and the execution of agreements. Campus report writing procedures are also covered.

Material Changes

(1) Various editorial changes made throughout the IRM. References to Form 1120S were removed as none remain that were subject to TEFRA.

(2) 4.31.3.1 - Overview. Add sentence regarding the creation of desk instructions.

(3) 4.31.3.3.1 - Receipt of NBAP Package. Removed reference to the area PCS Coordinator. Added changes to paragraph (g) to explain generic NBAP needs to be sent certified to the 1065 address, or a more current address. Removed references to specific TMP NBAPs.

(4) 4.31.3.3.1.1- Administration of the Group E-mail Box. Added instructions on adding and removing users.

(5) 4.31.3.3.2 - Linking Partners. Removed reference to area PCS Coordinator. Added paragraph (6) - investors must be loaded onto the TEFRA database.

(6) 4.31.3.3.3.5 - TE/GE Investors. Paragraph (2) - added clarity to explain that partner list must be sent out each month.

(7) 4.31.3.3.3.10 - No-Load Tiers. Added paragraphs to add clarification.

(8) 4.31.3.3.3.12 - Linking for Foreign Withholding. New section.

(9) 4.31.3.4.4.2, Schedule K-1 Discrepancy. Added paragraph (3) regarding nominees.

(10) 4.31.3.4.8.1 - Field Suspense of SB/SE Investors. Clarified that TEFRA issues must be resolved before Joint Committee will accept the return. The cases will be held in the group until the TEFRA issues are resolved.

(11) 4.31.3.4.8.2 - Field Suspense of LB&I Investors. Added a note to further clarify the campus processing of CIC related cases.

(12) 4.31.3.4.8.3 - Carryback and Carryover Returns. New section.

(13) 4.31.3.4.11 - Receipt of Amended Returns and Claims. Added paragraphs (6) and (7).

(14) 4.31.3.4.14 - Notice of Bankruptcy. Added reference to IRM 4.31.7.

(15) 4.31.3.4.17 - PCS 4-4 Report. Added clarification that reports are to be sent monthly.

(16) 4.31.3.5.2 - Processing of 60-Day Letter. Change time frame for campus to send letters from 30 to 45 days.

(17) 4.31.3.5.5 - No Adjustment. Removed note from paragraph (1)(c), at Appeal's request.

(18) 4.31.3.5.6 - FPAA. Added reference to the Form 14434, Electronic Notice Package Check Sheet.

(19) 4.31.3.6.1 - FPAA Default. Removed reference to the area PCS Coordinator.

(20) 4.31.3.7 - Processing Form 870 Agreements and Settlement Agreements. Threshold raised from $25,000 to $250,000.

(21) 4.31.3.7.1 - Agreements Received at the Closing Conference. Removed paragraph (4) and renumbered. Section mentioned Forms 870-PT and LT and was no longer needed.

(22) 4.31.3.7.5 - Execution of Agreements. Added the following statement to the paragraph (1). See IRM Exhibit 4.31.2-11 for additional information about who should sign the agreement.

(23) 4.31.3.7.6 - Acceptance of Faxed Agreements. Threshold raised from $25,000 to $250,000.

(24) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

(25) 4.31.3.12.2.1 - Review Closing Package. Removed references to outdated forms.

(26) 4.31.3.12.2.2 - Verify Statute. Removed references to outdated forms.

(27) 4.31.3.12.2.3 - Check for Penalties and Affected Items. Removed references to outdated forms.

(28) 4.31.3.12.3 - Tier Report Writing. Added paragraph (11).

(29) 4.31.3.12.4.1 - Determining Adjustments. Added a reference to new Letter 4735, Notice of Computational Adjustment.

(30) 4.31.3.12.4.2 - Examination Report with Penalties and/or Affected Items. Added a reference to new Letter 4735, Notice of Computational Adjustment.

(31) 4.31.3.12.2.5 - Referring Complex Issue to the Field. Updated the section to explain that a Headquarters Analyst should be contacted if assistance is needed with referring a case to the field.

(32) 4.31.3.12.5 - Processing of Adjustments. Removed references to outdated forms.

(33) 4.31.3.12.6 - Completion of Form 5344 – Examination Closing Record. Added information on the suspension of interest in paragraph (c). Clarity was added to the note in paragraph (e) regarding no change letters. Added a new bullet to address DC 32. Added clarification regarding the need to send audit reports for cases closed DC 01. In the note, changed taxpayer to investor. Added DC 11.

(34) 4.31.3.12.6.1 - Case File Assembly. Add a note at the end of the section for cases closed through the GII. Various additions for clarity. Added paragraph (1)(c)(d)(h)(i) and (n).

(35) 4.31.3.12.13- Erroneous Refunds. New section.

(36) 4.31.3.13 - Key Case Administrative File Suspense. New section.

(37) Exhibit 4.31.3-2 - IAT Tools. New section.

Effect on Other Documents

IRM 4.31.3, Pass-Through Entity Handbook, TEFRA Examinations - CTF (Formerly ESU) Procedures, dated 2-29-2008 is superseded

Audience

Field and campus personnel working TEFRA pass-through entities and/or their investors.

Effective Date

(06-11-2013)

Signed by Scott Prentky, Director, Campus Reporting Compliance, SB/SE

4.31.3.1  (06-11-2013)
Overview

  1. In section 2 of this Handbook, procedures for TEFRA examinations and support for those examinations by Technical Services were discussed.

  2. In this section the procedures required to pass the results from the key case examination to the partner returns are discussed. This section provides an overview of the process. The campuses may create local desk instructions to provide more detailed guidance.

  3. For each linked key case under examination, the underlying partner area or partner Campus TEFRA Function (CTF) should receive Form 5546 (Examination Return Charge-Out) showing the cross reference linkage. The underlying partner area or partner CTF should also receive the carbon copy of Form 5546 or Form 6658 (Notice of Special Investor Action) from the key case CTF transmitting the underlying partner's Schedule K-1, or other similar document provided by the examiner showing the flow-through items allocated to the investors, and a TSINQ print.

4.31.3.1.1  (06-11-2013)
Integrated Automation Technologies (IAT)

  1. Employees must use the Integrated Automation Technologies (IAT) tools shown in Exhibit 4.31.3-2 whenever possible. The use of some of the tools is mandatory when applicable for use. The IAT tools simplify processing by assisting the user with IDRS research and input. The tools reduce the chance of errors and improve productivity. They are desktop productivity enhancing tools. The IAT Website should be check periodically for new tools that may assist in processing cases. Descriptions of each tool as well as job aids for each tool can be found on the website.

  2. If a mandated tool is not used because it was determined not to be appropriate due to a specific situation, those circumstances should be documented in the case file.

  3. If an IAT tool is not available, or an employee has a problem with the IAT Task Manager, the case should be processed through IDRS following established procedures. Make a note in the case file if an IAT tool is not used.

  4. IAT tool users can visit the IAT Website, where you can sign up to become a subscriber to the IAT newsletter. The iNews details all ongoing IAT activity with tool retirements and rollouts.

4.31.3.2  (06-04-2004)
Screening Incoming Mail

  1. The CTF will screen all incoming mail to determine routing, priority handling, and to ensure that all documents affecting the CTF inventory are processed.

  2. All incoming mail will be stamped to reflect the date received.

    Note:

    Care should be taken not to stamp any documents sent to the CTF by the field that are intended to be sent to taxpayers. An example of this is the TMP letter. It is also important to stamp documents in areas where the least amount of information will be stamped upon.

  3. Correspondence normally received in the CTF includes one or more of the following:

    1. Form 870-PT, Form 870-LT, Form 870-PT(AD) , or Form 870-LT(AD); Form 4549, Income Tax Examination Changes; Form 1902-B; and RARs;

      Note:

      Form 870-P, Form 870-L, Form 870-P(AD), or Form 870-L(AD) should still be received if the partnership tax year ended before August 6, 1997.


    2. Form 906;

    3. Advance payments;

    4. Checks;

    5. Cash bonds (these must have a "999 " blocking series to preclude the assessment of interest);

    6. Taxpayer protests;

    7. Form 1040X and Form 8082;

    8. Copies of tax returns;

    9. Form 5546 and Schedules K-1;

    10. Form 6657, Related Returns Examination Report, and Form 6658, Notice of Special Investor Action (formerly Notice of Examination of Flow-through Entity);

    11. Default notices;

    12. Court decisions;

    13. Account maintenance transactions;

    14. CP 2000 notices;

    15. Taxpayer correspondence or inquiries; and

    16. Appeals settlements.

  4. Screening of incoming mail will be performed by Tax Examiners or qualified clerical personnel trained to be familiar with and knowledgeable about handling of the documents listed above.

  5. These personnel should be familiar with the Taxpayer Advocate Service (TAS) criteria in order to correctly identify those cases that should be referred to TAS. See IRM 13.1.7, Taxpayer Advocate Service (TAS) Case Criteria.

4.31.3.3  (06-04-2004)
CTF Key Case Procedures

  1. The key case CTF provides support assistance for each key case examination.

4.31.3.3.1  (06-11-2013)
Receipt of an Electronic NBAP Package

  1. The key case examiner will forward the Form 14090 (for an LB&I key case) or Form 14091 (for an SBSE key case), TEFRA Electronic Linkage Request Check Sheet, directly to the CTF through the group E-mail box shown on the form. A complete electronic package includes:

    1. A scanned or electronic return. (Schedules K-1 must be included with the scanned or LIN image. If the return has a LIN image, the LIN link will need to be included on the check sheet. For paper returns, fax to the number provided on the check sheet. If the return is too large, it may be mailed to the address on the check sheet.

    2. A copy of the election Form 8893, if the partnership elected to be covered by TEFRA proceedings.

    3. Electronic files of the generic TMP letters.

    4. The date the generic TMP letter(s) were mailed and the Certified Mailing Number

    5. A spreadsheet file verifying the reconciliation of the Schedules K-1 percentages.

    6. Scanned images of all Forms 872-P or other authority used to extend the key case statute.

  2. The TEFRA partnership must be fully established on AIMS prior to submitting the linkage package.

  3. If any partner returns will be examined in the field, those return must also be established on AIMS prior to linkage.

  4. An analysis of the entire partnership structure should be completed to determine the impact of any adjustments. If potential partnership adjustments will not result in material assessments to the underlying partners, then linkage should be reconsidered.

  5. There must be at least seven months on the key case statute when the campus receives the package. If less than seven months remain, reject the package to the agent to follow the TEFRA procedures in IRM 4.31.2.2.1, Initiating Timely Examination of Key Case Returns.

4.31.3.3.1.1  (06-11-2013)
Administration of the Group E-mail Box

  1. It is recommended that access to the group E-mail box be limited for inventory control purposes.

  2. Users are added or removed by the owner of the mailbox. User changes can be made by opening the Outlook address book and typing in "Access to" followed by the name of the email box without the "*" . Right click on the name and open properties. A box on the right will allow the owner to modify the users.

  3. The group E-mail box will accept secure E-mail.

  4. The users need to ensure the secure messaging certificates are renewed timely.

  5. An ITAMS ticket must be submitted to request a new certificate.

  6. The certificate expiration date can be found by looking up the group e-mail box on the Global Address Locator (GAL). Look up the mailbox in the GAL, right click on it and go to Properties. Click on the Add to Contacts button at the bottom of the properties and the click on the certificates tab. Click on the Properties button along the right hand side of the box. A box will open reflecting the certificate information and expiration date.

  7. A new certificate can be requested up to 30 days prior to expiration date.

4.31.3.3.2  (06-11-2013)
Linking Partners

  1. Prior to linking the partners, the CTF will research and verify the Schedule K-1 TIN is correct. If the TIN is incorrect, the CTF will attempt to obtain the correct TIN. If the CTF is unsuccessful, the examiner will be contacted for assistance.

    Note:

    All partners must be linked to the key case. Special consideration needs to be given to non-filers, parent/subsidiary investors, and TE/GE investors. For procedures for these investors See IRM 4.31.3.3.2.1.

  2. The key case CTF will perform the basic research to verify that an investor return has been filed by using CC IMFOL or CC BMFOL. If no TC 150 is posted on Master File, the investor return is established on non-Master File AIMS and linked to the key case.

  3. The CTF inputs CC TSLODK for all notice partners. Non-notice partners will be loaded onto the PCS using CC TSLOD, using Form 8341, PCS Establish or Add.

    Note:

    A non-notice partner exists a partnership has more than 100 partners, and a partner owns less than a one percent interest in the profits of the partnership. The Tax Matters Partner is responsible for providing copies of all notices to the non-notice partners.

    1. CC TSLODK produces Form 886-Z, which must be compared to the Schedules K-1 for the notice partners to verify that they are listed correctly.

    2. The CTF will send the NBAP to each notice partner using certified mail, within 30 days of receipt of the linkage package from the field. The campus may suspend linkage packages received within the 45 day withdrawal period. Spouses are not required to be sent a separate NBAP unless the spouse is listed separately as a partner on the Schedule K-1, or otherwise identified as a partner on the partnership return.

    3. Within 10 days after mailing of the NBAP, two copies of the Form 886-Z will be sent to the area revenue agent. One copy of the Form 886-Z will be placed in the CTF key case administrative file.

    4. The CTF will update the key case 120 day date on the PCS using CC TSCHG, item number 13. The 120 day date is computed by adding 120 days to the date the last NBAP was mailed to any partner.

  4. Key case administrative files must be filed in TIN sequence. An action sheet must be included in each key case administrative file to show significant dates of key case and investor activity.

  5. The key case and investor information must also be loaded on to the TEFRA database.

4.31.3.3.2.1  (02-29-2008)
Non-Master File Linkages and Using Dummy Numbers

  1. All entities with a Schedule K-1 will be linked to the key case. Several instances could arise where a non-Master File AIMS data base is necessary to link the investor to the key case. For example, the entity could be a grantor trust and not required to file a return. In that case, use the trust's EIN when creating the non-Master File AIMS data base and link the trust to the key case. If the trust does not have an EIN, then a "dummy" number is secured and that is used for the EIN of the trust. Exempt organizations will also require a non-Master File AIMS data base be created prior to linking. The PCS will not allow for a link to an exempt organization Master File account. Use the exempt organizations EIN when creating the account.

    Note:

    If a non-filing grantor trust is an investor in a tier, setting up a non-Master File AIMS data base using the trust's EIN or dummy number is not required. The beneficiary can be linked directly to the tier. The process above is utilized to force the PCS to generate the required notices and agreements to the investors. There are no notice requirements to indirect investors in a pass-through partner (unless specifically requested in accordance with the Regulations or if the indirect partner is directly linked), hence the reason for the creation of the non-Master File records no longer exists.

  2. In the case of non-filing trusts, every attempt will be made to determine if there is a flow-through entity, either through research or through contact with the key case agent.

  3. If the non-filing entity is identified as a Form 1120-S (filing requirement 1120-02 on INOLE) or a Form 1065, research should be done to determine the shareholders or partners. Every effort should be made to identify and have the flow-through investors linked as soon as possible.

  4. No transfer of data bases will be made on non-filing trusts, and non-filing IMF and BMF investors where the key case is TEFRA.

  5. The key case CTF will send a non-filer letter to obtain information regarding the loss, income, or deduction taken on the partnership, trust or individual return. Do not contact the taxpayer if there is "Z" Freeze or a TC 914 on the taxpayer account. If there is a "Z" Freeze or a TC 914 on the taxpayer account, give the partner information to the Campus TEFRA Coordinator for immediate, appropriate action. If the Campus TEFRA Coordinator learns the taxpayer is the subject of a criminal investigation, and that the taxpayer was sent notification that their partnership items have converted to nonpartnership items, that removes the taxpayer from the TEFRA proceeding. The Campus TEFRA Coordinator will inform the cooperating agent (or Special Agent) of the TEFRA proceeding of the related key case and the cooperating agent or Special Agent will take the appropriate necessary action.

  6. For individual non-filers, a review of IRPTR transcripts needs to be completed to determine if a referral as an SFR is warranted.

4.31.3.3.2.2  (08-01-2006)
Identifying a Parent Return

  1. When trying to identify a parent corporation of a subsidiary, CC INOLES may be used but it may not always be accurate. INOLE may show who the parent is currently, but that may not be the same parent for the year under examination. A better means to identify the parent for the year under examination is to use CC BMFOL. The User Special Message can be used to identify specific problems or unique situations. An example would be to enter the literal "Parent" and its TIN where a subsidiary is the investor in a flow-through entity. The parent corporation will also be linked to the key case. This will help ensure that the taxpayer(s) will receive all required notices. Another example would be to enter " TE/GE" for a tax exempt entity that is an investor.

  2. Request a BMFOLI on the subsidiary EIN. Find the module with the same year-end as the key case or the proper year-end of the subsidiary for which the key case Schedule K-1 information would flow to the subsidiary.

  3. Request a BMFOLT for the module identified in (2) as being the correct one for the year in question.

  4. The BMFOLT should reflect a TC 590 and an EIN of the parent for that tax period. If more than one EIN is shown, an inspection of the prior and subsequent year modules may provide the answer. If still unable to make a determination, the area TEFRA Coordinator may need to contact the key case examiner for clarification.

  5. If no module was identified in (2) above, check BMFOLT for the first module before and the first module after the module that would have been correct. If the same parent is identified in those two modules, it is reasonable to conclude that the parent will be the same in the middle year. If the parent indicated is not the same in both years, contact the key case examiner for clarification.

  6. Once the parent EIN is determined, a BMFOLT is requested to verify the parent filed a return. If the parent did not file, an AIMS non-Master File data base will be established and linked to the key case.

  7. If it is determined the parent is also a subsidiary, the research will continue until the "ultimate" parent is determined. The ultimate parent will be linked to the key case. Any intervening levels of parent corporations will not be linked.

  8. The AIMS non-Master File database is retained in the key case CTF, and research performed utilizing National Access Information (NAI), CFOL command codes, and CC NAMEE or NAMES.

  9. No transfer of data bases will be made on subsidiaries where the key case is TEFRA.

4.31.3.3.2.2.1  (02-29-2008)
Linking Parent/Subsidiary Investors

  1. When a subsidiary return is identified, both the parent and the subsidiary partner (of the same consolidate group) need to be linked.

  2. First, a TSLODP will be input to link the parent to the key case. The existence of a normal tier value ( #, T, or blank) on the key case will result in the establishment of the parent as an investor, but a "P " will be displayed on the tier indicator of the partner record. A TSLODP will not generate an NBAP to the parent. The NBAP to the subsidiary returns is all that is needed.

  3. A TSLODS will then be used to load the subsidiary return(s). The NMF AIMS record must be created, and then the TSLODS will be input. The TSLODS will establish the NMF linkage, and an "S" will be displayed on the tier indicator of the partner record.

  4. Next, a TSCHG must be done to update the K-1 name and address information for each subsidiary record. The K-1 information of each subsidiary will be altered as follows:

    K-1 Name Name of parent
    K-1 Second Name Name of subsidiary
    K-1 Street Address Parent street address
    K-1 City-State-Zip Parent city-state-zip

  5. When 60-Day Letters or FPAA's are generated, a TSNOT will be input as normal. PCS will identify the parent/sub relationship and generate two copies of the letters and two cover sheets.

    1. The notice address for both copies will use the subsidiary K-1 information that was altered to reflect the parent information.

    2. Two cover sheet mailing addresses will also be generated. One cover sheet will have the parent address and the other will have the subsidiary address. The subsidiary cover sheet will have language to notify the subsidiary that they are receiving a copy of the notice sent to the parent.

4.31.3.3.2.3  (06-04-2004)
Limited Liability Companies That are Disregarded Entities

  1. An LLC that is a disregarded entity should be linked if the entity is a direct partner in a key case. For more information on LLC's see IRM 4.31.2.2.6.1.

  2. The disregarded entity does not file a return, but still has an EIN. If the disregarded entity's EIN is not shown on the Schedule K-1, the correct EIN should be requested from the field. A dummy number will be used as a last resort.

  3. A disregarded entity that is a direct partner must be linked, and notices must be sent to it, because it is the partner in the key case. Only the notice partner can agree to adjustments. The owner/member of a disregarded entity will always be an indirect partner.

  4. There is an exception if a Schedule K-1 is issued with the name and TIN of the single member and does not list the name of the disregarded LLC, the single member may be linked directly to the key case, and be sent notices accordingly. We can do this because IRC 6223(c) provides we should use the names and addresses as provided on the partnership return unless that information is updated under the regulations. Although the single member was issued the Schedule K-1, the existence of the disregarded entity will still cause the key case partnership to fall under TEFRA.

  5. When the disregarded entity is not linked directly to the key case, but is itself an indirect partner, the campus may choose to link the owner/member directly and ignore the disregarded entity. When the campus chooses to do this, the owner member should be linked to the tier in place of the disregarded entity.

4.31.3.3.2.4  (06-04-2004)
Grantor Trusts

  1. Grantor trusts will be linked similarly to disregarded entities. A grantor trust that is a partner in a key case will be linked directly to the key case.

  2. If no return was filed, or the beneficiary's TIN was used on the Form 1041, then a dummy number will have to be used to link the trust.

  3. A grantor trust that is a direct partner must be linked, and must be sent the notices, because it is the partner in the key case. Only the notice partner can agree to adjustments. The beneficiary on a grantor trust will always be an indirect partner.

  4. When the grantor trust is not a direct partner in the key case, but is itself an indirect partner, the campus may chose to link the beneficiary directly and ignore the trust. When the campus chooses to do this, the beneficiary should be linked to the tier in place of the grantor trust.

4.31.3.3.2.5  (06-11-2013)
TE/GE Investors

  1. TE/GE investors must be established on NMF prior to linkage.

  2. TE/GE will be forwarded a list of all TE/GE investors linked to TEFRA key cases each month. The listing will be sent to addresses provided by the SBSE HQ TEFRA Analyst.

  3. TE/GE will be forwarded closing packages as the related key cases close.

  4. TE/GE will be responsible to make any flow-through adjustments affecting their investors.

4.31.3.3.2.6  (05-31-2005)
LB&I Key Case in Appeals

  1. The input of a TSLOD on an investor when the key case is in Appeals (PBC 6XX) will result in the investor being established in a 295 PBC with a BSC CTF Indicator. If the investor is controlled by the Ogden campus, the investor should be established on AIMS in PBC 298 prior to the TSLOD. That will allow the investor to be established under the jurisdiction of the correct campus.

  2. If an investor establishes under a 295 PBC in error, the investor database must be AMSOC'd back to PBC 298. A TSCHG will also have to be input to change the CTF indicator from BSC to OSC.

  3. Updating the CTF indicator is important because it allows Appeals to determine which campus controls the investor. If the CTF indicator is not updated properly, Appeals will likely send the closing package to the wrong campus.

4.31.3.3.2.7  (08-01-2006)
Foreign Investors - Return not Filed.

  1. When a foreign investor is identified as an investor in a TEFRA partnership key case, the partner will be linked NMF for notice purposes.

  2. The examining agent will be sent a memo stating that there is a foreign investor linked to the key case. The memo will be sent with the Form 886-Z.

  3. If a foreign investor is identified in an underlying tier, then a memo should be prepared and sent separately to the agent.

4.31.3.3.2.8  (02-29-2008)
Partnerships Filing a 761 Election

  1. Certain partnerships may file an election to be excluded from all of Subchapter K as provided in Treas. Reg. 1.761-2. This election is made with the first return, and then future Form 1065 filing requirements are removed. However, the partnership still exists and can invest in other entities. As a result, these entities may be partners in TEFRA partnerships. In that event, a NMF record will be created for the tier partnership, and the partners will need to be linked to the tier.

  2. These returns present another problem in that identifying the partners requires taxpayer contact. Because there are no filing requirements, Schedules K-1 are not available. In some cases, the originally filed return may be secured but the taxpayer should still be contacted to ensure there are no changes.

4.31.3.3.2.9  (02-29-2008)
Individual Retirement Accounts (IRA)

  1. Some taxpayers invest in partnerships through their IRAs. Usually the Schedule K-1 will reflect that the partner is an IRA, but will show the taxpayers SSN. If the IRA partner is invested directly in the key case, then the IRA partner will be linked for notice purposes. The notice should be addressed to Joe Partner, IRA with Joe's SSN.

4.31.3.3.2.10  (06-11-2013)
No-Load Tiers

  1. Some partnerships have many levels of tiering. As a result, the percentage of any potential key case adjustment that may impact some lower level tiers becomes very diluted. When this occurs, the campus should review the tier to determine if resources should be expended to link it's investors. There is no sense linking the tier investors if it is very likely that any adjustments will fall below tolerance. If there is any question as to whether the key case adjustment will impact the lower investors, then the tier investors should be linked. Always err on the side of linking.

  2. The determination on whether or not to link should be made by a Revenue Agent and may require discussions with the key case agent.

    Note:

    Notice partners will always be linked regardless of the size of the partnership or their percentage of ownership.

  3. The first step is applying the tolerance levels outlined in IRM 4.31.3.12.1 at the tier level. This should be a straight percentage. For example, a partnership adjustment (or potential adjustment) of $x divided by the number of partners. If the average adjustment will result in tax below tolerance, then no load the tier.

  4. An exception to that rule occurs when the overall adjustment is very large. For example, if the overall adjustment is $50,000, then it may be worth the effort to check the Schedules K-1 for a taxpayer with a large percentage of ownership. If the Schedules K-1 indicate that a taxpayer will receive a large percentage of the adjustment, then a check for special allocations should be made. We should only work a partner if they are going to receive a large enough percentage of the adjustment that it will make it worth our investment in processing.

  5. The significance of the adjustment will vary from case to case depending on the size of the adjustment compared to a partner’s allocation. Revenue Agents making the determination must use their best judgment in making the determination. The decision to load or not load should be documented in the case file.

  6. When making a no load determination, you should not attempt to determine if a partner has multiple linkages. If we already have that information, then it should be considered. No load determinations should be made as quickly as possible to avoid loading as many downstream investors as possible.

  7. Making a no load determination is an imperfect process, and decisions will be made based upon the facts at that time. The agent needs to document the case file to support their determination. Incorrect determinations based upon reasonable judgment may occur from time to time. A barred statute report will not be prepared if, based upon new information, a properly documented no load tier or underlying investor is later found to fall above tolerance.

  8. Yk1 and related tools should be used when making the no load determination. These tools can greatly assist in the decision making process.

  9. When a no load determination is made, it is important to remember to update the indicator on the PCS. Inputting the no load indicator on PCS will remove the tier from the PCS 8-7 Report, Unperfected Tier Report, and add it to the PCS 8-6 Report., No-load Report. The no load indicator is added using PCS command code TSCHG 35-X.

4.31.3.3.2.11  (10-01-2010)
Partners of Publicly Traded Partnerships (PTP)

  1. A PTP is a publicly traded partnership with a very large number of partners. They often have tens of thousands of partners. As a result, it is unlikely that all partners will be impacted significantly by any adjustment made at the partnership level.

  2. A complete evaluation of the potential adjustments should be made before linking any partners beyond the notice partners. Contact with the field may be necessary to determine the extent of potential adjustments.

4.31.3.3.2.12  (06-11-2013)
Linking for Foreign Withholding

  1. Taxes withheld on a foreign partner’s income under IRC 1441, 1442, and 1446 are considered Partnership items. An examination of a TEFRA partnership with respect to these withholding tax sections is subject to the TEFRA partnership procedures. IRC 6231(a)(3); Treas. Reg. 301.6231(a) (3)-1(a)(1)(v).

  2. The linkage package must clearly state that the partnership is being linked strictly for pursuing foreign withholding. If foreign withholding is the only issue, then the campus will only link the direct investors. No indirect investors will be linked. The direct investors need to remain open for notice purposes only.

4.31.3.3.3  (06-11-2013)
Follow-Up on Establishment of Key Case and Investor Linkage

  1. A Form 5546 labeled "Flow Through Notification" is generated for each partner that is successfully linked on PCS.

    1. Generally the investor file will be controlled in the same CTF as the key case. A contact point in each CTF will be established to send the Form 5546, or Form 6658, with Schedule K-1 attached when the investor file is located in the other CTF or the field.

    2. The original of the Form 5546 is filed in the key case administrative file.

  2. Rejects are perfected using the TC 424 Reject Register. When accounts loaded through CC TSLOD do not match at Master File, they are listed on the TC 424 Reject Register as status 99 rejects.

    1. These accounts do not establish on AIMS and no Form 5546 is produced.

    2. This condition may be caused by an input error, an incorrect MFT, tax period, or name control. This condition may also be caused by the lack of a TC 150 or the requested module is on retention.

    3. The TC 424 Reject Register is distributed weekly to each CTF.

    4. Status code 99 rejects must be worked promptly by each CTF.

    5. TSUMYP can be used to check if linked partners match Schedules K-1. (See IRM 4.29.2.2.)

4.31.3.3.4  (06-04-2004)
Key Case Administrative File Maintenance

  1. Quarterly, each CTF will receive PCS Report 22-3, National Directory, for each TEFRA flow-through record within its campus jurisdiction. Report 22-3 shows the key case record AIMS and PCS data elements and information about each linked partner. Report 22-3 is used to monitor partner linkages and must be worked quarterly as follows:

    1. Partner linkages without a full AIMS data base which appear with a name control and no statute date must be perfected before they drop off the data base;

    2. Each Schedule K-1 investor that does not appear on Report 22-3 must be re-established;

    3. Investors in status 90 must be checked to ensure that they have not closed prematurely;

    4. Key Case and investor TEFRA indicators must be checked; and

    5. The Report 22-3 must be filed in the key case administrative file.

  2. Report 21-3, TEFRA Key Case Action Report CTF, is a weekly report listing key cases whose status codes have been updated to 22, 24, 25, 8X or 90.

    1. The CTFs will follow up on key cases that were updated to status 90 to ensure that all partnershave agreed or that notice of a defaulted FPAA was received from the field.

    2. The administrative files of key cases that have been updated to status 82 must be flagged to show that the case is in docketed status.

4.31.3.4  (08-01-2006)
CTF Partner Procedures

  1. The tax examiner, in connection with the examination of any individual reporting flow-through items, should be satisfied that there is actual or presumptive evidence that a key case or tier return was filed.

    1. Include a statement to this effect in the work papers for the examination of the partner's return.

    2. When the key case or tier return is not readily available, the retained copy of such return or other prima facie evidence presented by the taxpayer may be acceptable.

    3. Other prima facie evidence may consist of correspondence or other valid and pertinent information in the possession of the investor reflecting the operations of the key case or tier.

  2. If after the review of a copy of the key case or tier return the examiner concludes the return should be examined, a collateral request will be made in accordance with IRM 4.2.2.1.

  3. If the information available from the partner indicates the flow-through entity EIN is "applied for" , the examiner should request NAMEE research to verify that the return was filed.

  4. If the taxpayer (partner) leaves the flow-through entity EIN blank, the examiner should ask the taxpayer for the EIN. If the taxpayer provides an EIN, no further action will be taken. If an EIN is not provided, the examiner will verify that the return was filed by requesting the research in (3) above.

  5. Any time an examiner inspects a Schedule K-1 or retained copy of a Form 1065, Form 1041, or Form 1120, the taxpayer should be advised that the inspection does not constitute an examination, and the taxpayer's share may be adjusted at a later date if the return is examined.

4.31.3.4.1  (06-04-2004)
CTF Employee Group Codes

  1. All TEFRA partner returns in the CTF are maintained in AIMS status 34; however, status codes 22 and 24 should be used for returns, in process, that have penalty or other affected item issues.

  2. The CTF will use the following AIMS EGC to control their inventories. No other EGCs may be used.

    Employee Group Code Description Aging Criteria
    5700-5799 Pre-Filing Notification None
    5800-5899 TEFRA Returns None
    5800 Newly Established Investor Returns 60 days
    5801-5809 Incomplete Files 90 days
    5810 Classification (local option) 60 days
    5817 Transfers-In (incoming to the CTF) 60 days
    5818 Regular Suspense Files None
    5819 Carryback or Carryover (local option) None
    5820-5839 Report Writing 60 days
    5840-5849 30-Day Letter/Penalties or Affected Items 45 days
    5850-5859 90-Day Letter/Penalties or Affected Items 120 days
    5860-5869 Tiers None
    5870-5879 District Court and Court of Federal Claims controlled investors, after assessment None
    5880-5899 Reserved for future use None

  3. Where EGC ranges are provided (except 5880-5899), codes within the range may be assigned at local option. EGCs 5000-5399 are reserved for Correspondence Examination; 5400-5499 are for nonTEFRA (See IRM 4.31.6); 5500-5699 and 5900-5999 are available for local option.

  4. Where aging criteria is none, EGC specific aging criteria may be determined locally as needed.

4.31.3.4.2  (10-01-2010)
Form 5546, Return Charge-Out Document

  1. Form 5546, with the literals "FLOW THROUGH NOTIFICATION" and with the investor Schedule K-1 attached, is forwarded by the key case CTF to the partner CTF if different from the key case CTF, via Form 3210. The investor 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 information was received. It does not mean that the information was complete or that everything listed on the Form 3210 was actually received.

  2. When the key case is controlled in an area outside the partner CTF's jurisdiction, the carbon copy of Form 5546 is noted with the contact point and telephone number of the key case CTF contact. The CTF's will provide a contact point to each other for where the Form 5546 with the Schedule K-1 attached will be sent when the investor file is located in the other CTF.

  3. The investor CTF will use the Form 5546 with the Schedule K-1 attached to establish an investor file awaiting receipt of the return.

  4. If Item 29, Employee Group Code, indicates that the investor return is established in an EGC other than 58XX:

    1. The partner CTF will coordinate with the function charged with the return to obtain a copy of the return for the investor's suspense file. (see Note)

    2. The partner CTF will request the return be transferred along with the AIMS controls to the CTF for suspense when the other function completes its action(s) on the return.

    3. When the copy of the return is received, the investor CTF will reconcile the Schedule K-1 to the investor return.

    Note:

    A copy of the return will not be solicited for those investor returns that are corporate LB&I, Joint Committee or other corporate specialty cases. Any adjustments that may be necessary to these returns as a result of the examination of a related flow-through entity will be made by the examination group that has the control of the investor return. The CTF is only a conduit to ensure the examination group has the closing package necessary to compute any adjustments that may be necessary. The CTF will not be preparing any of the reports, the computations or making the assessments. The CTF may wish to keep a "dummy " file for the investor, but no action other than being a conduit will be undertaken. (See IRM 4.31.3.7.1(3) )

  5. If the EGC is 5800 and an partner file was not previously established, then the EGC should be updated to 580X to indicate that an incomplete file has been established (return not yet received). The AIMS EGC date is automatically updated.

  6. If the EGC is 5810 through 5879, then an partner return file was already established in the investor CTF.

  7. Form 5546 and the Schedule K-1 will be associated with the previously established file. Form 5546 with the literals "RELATED INVESTOR NOTIFICATION" is also generated if the partner return is already open on AIMS. It is filed in the investor case file to show that an additional linkage was established.

  8. Upon receipt of the AIMS Weekly Update Report, resolve the update codes in accordance with IRM 4.4, AIMS/Processing Handbook.

4.31.3.4.3  (06-04-2004)
Maintaining Manual and/or PCS Control of Related partner Returns

  1. Upon receipt of Form 6658 (Notice of Special Investor Action) the partner CTF should update to the proper project code. No update is required (other than updating the project code) if the partner campus and the key case campus are the same.

  2. Upon receipt of Form 6658, the key case CTF's attached research should be reviewed. After the return is established on AIMS the key case CTF should be notified to establish PCS control.

  3. The investor Schedule K-1 attached to the Form 6658 will be reconciled to the investor tax return. If an indirect, related investor is identified by a pass-through investor, and a name, address, TIN, MFT, tax period, and percentage of profit or loss are provided, the key case CTF will control the pass-through investor (tier) return via Form 8341.

4.31.3.4.4  (02-29-2008)
Screening of Investor Returns

  1. The complete partner file consists of the partner return (or copy), Form 5546, and a copy of the Schedule K-1 from the key case return. If prior adjustments have been made to the taxpayer's return for this tax year, the adjustment documents or copies are also included in the file. If there have been any prior amended returns, the amended returns or copies must also be included.

  2. Each completed investor return file must be screened by technical personnel prior to suspense.

    1. The return and Schedule K-1 must be reconciled.

    2. If the amounts shown on the Schedule K-1 do not equal the amounts shown on the return, an inquiry must be sent to the taxpayer requesting an explanation for the discrepancy using Letter 4641-C. Care should be taken with regard to losses. Losses may be limited at the partner level and may not match the Schedule K-1. A technical referral should be considered before sending out an inquiry to the taxpayer. Our inquiry may prompt the taxpayer to file a claim that may not be valid.

    3. All taxpayer responses should be screened by technical personnel who will identify actions needed as follows. Other responses will be analyzed by technical personnel on a case by case basis.

      Note:

      For more information on Schedule K-1 discrepancies, See IRM 4.31.3.4.4.2.

    If Then
    The wrong taxpayer was linked Attempt to identify the correct taxpayer and establish linkage.
    The wrong taxpayer received notices Initiate disclosure procedures per IRM 11, Disclosure of Official Information Handbook. http://discl.web.irs.gov/rptunauth.asp is also a good reference.
    A nominee is identified Initiate linkage to the key case using Form 8341 with CC TSLOD.
    A loss was limited to basis Note the taxpayer file, associate correspondence, and suspense the return awaiting results of the key case examination.
    The taxpayer does not respond Do not allow any loss NOT claimed on the return.
    A potential carryback or carryover is identified on an investor return The screener will order a complete Master File Transcript (MFTRA) or prior and subsequent period IMFOL's or BMFOL's to determine if the loss or credit was carried back or carried over.
    A carryback or carryover is identified The carryback or carryover return must be requisitioned and established on AIMS. The prior and subsequent year returns may be requested either in EGC 5819 or 5818.

  3. Newly secured partner returns that are within the 26-27 month Examination Cycle must be screened for non-TEFRA issues.

    1. If nonTEFRA issues warrant examination, the return will be stamped "Selected" and will be sent via Form 3210, Document Transmittal, to the appropriate area for examination of these issues. The field 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.

    2. The partner CTF must keep a copy of the return sent to the field. This copy should be noted "Copy-original sent to field" .

    3. Any return that the area does not choose to examine should be stamped "Surveyed" , updated on AIMS to Status Code 34, EGC 5817, and returned to the CTF via Form 3210. The 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.

    4. All Schedules K-1 must be reconciled to the partner returns.

      If Then
      An indirect, related partner is identified by a pass-through partner. The key case CTF should establish the indirect partner using CC TSLODA.
      The screening process reveals a difference in the amount of income or loss between the Schedule K-1 and the partner return with no explanation on the return. The taxpayer should be contacted to explain the difference.
      A nominee condition exists. The key case CTF must establish linkage using CC TSLODA.

    5. If no nonTEFRA issues are identified during screening, the return will be updated on AIMS to EGC 5818 and placed in CTF suspense pending completion of the TEFRA key case examination(s).

    6. The CTF screeners will stamp each return " Accepted - for NonTEFRA Issues Only" before placing it in suspense.

  4. If an partner return is secured after receipt of a no change closing package special consideration must be taken. The return only needs to be screened for nonTEFRA issues if within the 26-27 month exam cycle. K-1 discrepancies will not need to be identified, and only amended returns that are still in process need to be secured. If an A freeze exists on the taxpayers module, then it must be secured.

  5. If an partner return is a Form 1065, Form 1120-S, or Form 1041, i.e., a tier, the partner CTF will use the Schedules K-1 information filed with that return to prepare Form 8341, PCS Establish or Add.

    1. Form 8341 is used for loading the investors by CC TSLOD (then TSLODA) establishing and linking these returns.

    2. When returns and/or Form 5546 for tiered investors are received, the procedures outlined in (3) above must be followed.

4.31.3.4.4.1  (08-01-2006)
LB&I Imaging Network (LIN)

  1. LB&I key case returns and their related Schedules K-1 are processed using LIN and are scanned and stored on-line.

  2. Paper copies will not be provided. A web link is provided where the data can be accessed. The Schedule K-1 can be accessed using LIN and compared to the taxpayer's return without needing a paper copy.

  3. If a return has a LIN link, the return should be updated to EGC 5809. LB&I monitors returns in this EGC and it alerts them to send out the web link to the appropriate campus.

4.31.3.4.4.2  (06-11-2013)
Schedule K-1 Discrepancy

  1. If a Schedule K-1 discrepancy is identified, the return should be checked for a statement of inconsistency. If no such statement was filed, the taxpayer will be contacted to explain the discrepant item(s) using Letter 4641-C. When contacting a taxpayer, their identity must be verified. See IRM 21.1.3.2 for an example of authentication language. See 21.1.3.9 for an example of faxing guideline language.

  2. The taxpayer's response will be reviewed by technical personnel.

    1. If all items are explained, and all other screening is complete, the partner's return can be suspensed in EGC 5818 until the TEFRA key case issues are resolved.

  3. If the taxpayer states the loss was divided with and claimed by other taxpayers, a nominee situation exists. Ensure the other nominee investors are linked.

4.31.3.4.4.2.1  (10-01-2010)
Direct Partners

  1. If all items are explained, and all other screening is complete, the partner's return can be suspensed in EGC 5818 until the TEFRA key case issues are resolved.

  2. If the taxpayer does not respond, or there are still discrepant issues remaining, the following action will be taken:

    1. Any overstatement in income or understatement in loss will be noted in the file, and will not be processed until the TEFRA proceedings are completed. The additional loss will not be processed immediately to provide the maximum interest offset to the taxpayer. If the taxpayer wants the income or loss processed, it is recommended to get that request from the taxpayer in writing. As part of the request, the taxpayer should explain that they understand that any future assessment as a result of the TEFRA examination may result in additional interest than would be charged otherwise. The partner return will be suspensed in EGC 5818 after all appropriate action is taken.

    2. Any understatement in income or overstatement of loss will be immediately adjusted via a computational adjustment, unless the taxpayer filed a statement identifying the inconsistency with their return in accordance with IRC 6222(b). Treas. Regs. 301.6222(a)-2(c)(2) and 301.6222(b)-2(a) allow the Service to adjust the taxpayers return via a computational adjustment in order to bring the taxpayer's return in agreement with the Schedule K-1. Such assessments can be made immediately if made before the issuance of an FPAA. If an FPAA was issued, the discrepant items should be included with the audit adjustments and made during the OYD period. Computational adjustments are made directly to the taxpayer's return with no agreement necessary. The partner return will be suspensed in EGC 5818 after all appropriate action is taken.

4.31.3.4.4.2.2  (10-01-2010)
Indirect Partners

  1. If all items are explained, and all other screening is complete, the partner's return can be suspensed in EGC 5818 until the TEFRA key case issues are resolved.

  2. If the taxpayer does not respond, or there are still discrepant issues remaining, the following action will be taken:

    1. Any overstatement in income or understatement in loss will be noted in the file, and will not be processed until the TEFRA proceedings are completed. The additional loss will not be processed immediately to provide the maximum interest offset to the taxpayer. If the taxpayer wants the income or loss processed, it is recommended to get that request from the taxpayer in writing. As part of the request, the taxpayer should explain that they understand that any future assessment as a result of the TEFRA examination may result in additional interest than would be charged otherwise. The partner return will be suspensed in EGC 5818 after all appropriate action is taken.

    2. If the discrepant amount is directly and computationally traceable to the key case, then any understatement in income or overstatement of loss will be adjusted via a computational adjustment, unless the taxpayer filed a statement identifying the inconsistency with their return in accordance with IRC 6222(b). Treas. Regs. 301.6222(a)-2(c)(2) and 301.6222(b)-2(a) allow the Service to adjust the taxpayers return via a computational adjustment in order to bring the taxpayer's return in agreement with the Schedule K-1. Such assessments can be made immediately if made before the issuance of an FPAA. If an FPAA was issued, the discrepant items should be included with the audit adjustments and made during the OYD period. Computational adjustments are made directly to the taxpayer's return with no agreement necessary. Computational adjustments to a direct partner can be made as long as there is an open TEFRA statute at either the partner or partnership level. The partner return will be suspensed in EGC 5818 after all appropriate action is taken.
      For example: Key Case partnership ABC is flowing through capital gains, and XYZ is flowing through only the capital gains from ABC, and Partner A does not pick up those capital gains then we can make the computational adjustment because we can trace the capital gains to ABC.

    3. If the discrepant amount cannot be traced to the key case, the any understatement in income or overstatement of loss will be assessed following deficiency procedures. The assessment should be made within the natural statute of the taxpayers return.

    4. Since it may be difficult to trace amounts back to the key case, it is best to always issue a stat notice reconciling the indirect partner's return with the partnership return and tiers within the partner's normal statute.
      For example: ABC is flowing through capital gains, and XYZ is flowing through capital gains from ABC and gains of its own, and partner A does not report all of the capital gains reported on the Schedule K-1, then we cannot make a computational adjustment because we cannot say for sure if the gains that were not reported were from ABC.

4.31.3.4.4.3  (06-11-2013)
Failure of a TEFRA Partner to File a Return

  1. If a partner does not file a return, the CTF will attempt to secure one from the taxpayer. The CTF may have to refer the case to the area in which the partner resides to take necessary action to secure the delinquent return. The filing date of an partner's return is the beginning of the three year IRC 6501 . The IRC 6501 will not be shortened by the earlier running of the IRC 6229 .

    1. The key case CTF will perform the basic research, i.e., IMFOL/BMFOL, and issue Letter 729 attempting to obtain an income tax return from the taxpayer, before establishing the case on NMF and forwarding the research to the partner CTF, if different from the key case CTF.

    2. Upon receipt of the research, the Campus PCS Coordinator will request that Form 2209, Courtesy Investigation, is issued on each partner for whom there is no filing record. The request will be sent to the campus Collection Operation and will include the following documents:
      • A copy of the Schedule K-1;
      • Copies of the AIMS and PCS requests;
      • Output that was generated from the requests;
      • Account research from the CTF; and
      • Other information or additional steps taken to locate the taxpayer and secure the tax return.

    3. When Collection secures an partner's tax return or TIN, they will forward the information to the Campus PCS Coordinator.

    Note:

    Do not transfer the NMF data base. It is used when closing the key case if no return is secured by anyone.

4.31.3.4.5  (06-04-2004)
Verification of Distributable Income (Loss)

  1. The distributive share of income or loss and other flow-through items reflected on the copy of the Schedule K-1 received from the key case campus will be matched against the amount of the flow-through items reflected on the partner's return.

    1. Where the amounts do not reconcile, appropriate action will be taken to clarify mismatched information through taxpayer contact (see IRM 4.10, Examination of Returns). Use Letter 4641-C when making taxpayer inquiries about discrepant or missing items.

    2. This mismatch may be attributable to a variety of situations (i.e., the name on the Schedule K-1 may be a nominee, actual losses may exceed the allowable loss limitation, etc.).

    3. After contact, any pertinent information will be provided to the key case CTF.

  2. In some instances, partners of a principal (key case) partnership are other partnerships (tier partnerships), S corporations, trusts, nominees, etc. It is possible to have several tiers.

    1. Any adjustments to the principal entity may flow to individual taxpayers (i.e., the partners of the tier partnership, the shareholders of the S corporation, and the beneficiaries of the trust, etc.) through the particular entities of which they are members and not directly from the principal entity.

    2. When a tiering situation is found, necessary steps to control the additional returns should be taken.

    3. This includes the preparation and submission of Form(s) 8341 for the additional tier(s).

4.31.3.4.6  (06-04-2004)
Control of Partner Returns

  1. This subsection discusses the procedures used for the returns received when the key case was linked.

  2. Upon receipt of the carbon copy of Form 5546 labeled "FLOW THROUGH NOTIFICATION" and attached Schedule K-1, AIMS updates will be made as required. For example, the CTF will be required to update the EGC from 5817.

  3. Upon receipt of Form 5546 (Notice of Special Investor Action) with attached Schedule K-1, updates may be required.

  4. Form 5546 will be retained and associated with the partner case file.

  5. The partner Schedule K-1 attached to the Form 5546 will be reconciled to the partner tax return. If an indirect, related partner is identified by a pass-through partner, and a name, TIN, MFT, and tax period are provided, contact the key case area or the CTF to request and control the partner return via Form 8341.

4.31.3.4.7  (06-04-2004)
Conducting the Related Partner Return Examination

  1. TEFRA issues will be identified by the key case agent, and TEFRA assessments or overassessments will be made by the CTF with the partner return.

  2. When a tiering situation exists, the case(s) will close as follows:

    1. If the second tier has TEFRA and nonTEFRA issues, the second tier will be resolved as the issues are resolved.

    2. First tier investors are notified and assessed their share of any TEFRA first tier (key case) examination results. Additionally, the second tier investors are separately notified and assessed for their share of any TEFRA first tier examination results.

    3. The second tier investors will be separately notified and assessed for their share of the nonTEFRA examination results.

  3. Statute control for TEFRA issues is the primary responsibility of the key case area because the partner statute of limitations is controlled by the key case statute of limitations.

4.31.3.4.7.1  (10-01-2010)
TEFRA Partnership Issues With Unresolved NonTEFRA Partner Issues

  1. When a TEFRA partnership issue is resolved before the nonTEFRA partner issues, the CTF with control of the partner return will:

    1. Request a copy of the partner return (not corporate LB&I, CIC corporation, Joint Committee and/or other corporate specialty tax returns) from the partner area through the Operations Manager, or PSP as needed, to make the assessment on the TEFRA issue.

      Note:

      For Appeals, go through Processing Services of the specific Appeals office to locate the person with possession of the partner return.

    2. Forward a copy of the examination report, any workpapers related to the flow-through adjustment, and a Form 5344 (Examination Closing Record) prepared for the partner after each assessment, to the partner area through the Operations Manager, PSP (or the local TEFRA Coordinator) to assist the examiner in preparing a Form 5344 and Revenue Agent Report when the nonTEFRA issues are resolved. The transfer should be made using Form 3210.

  2. TEFRA related partner Joint Committee cases will be suspensed in the Examination function with the other suspense cases in the field office file(s) with the exception of cases described in this Handbook. (See IRM 4.31.3.4.8.2)

    1. However, prior to placing a Joint Committee case in suspense, any agreed deficiencies relating to nonTEFRA issues will be assessed, and the case will be forwarded to the Joint Committee key area for a procedural and technical review under the general provisions of IRM 4.36, Joint Committee Procedures.

    2. Upon completion of the review and resolution of any questions raised by the Joint Committee reviewer, the case will be returned to PSP (without the preparation of a Joint Committee report) and suspensed until notification is received from the CTF that the TEFRA issues are resolved.

    3. When notified, any deficiencies will be assessed following area partial assessment procedures.

    4. Upon the field's receipt of the Form 5344 and an examination report, the examining area office will forward the completed Joint Committee case to the key area Technical Services for final processing and preparation of the Joint Committee report.

  3. TEFRA related investors that are also CIC corporations, Joint Committee and/or those with other corporate specialty returns, are suspensed in the examination group. Prior to placing the case in suspense, any agreed deficiencies relating to nonTEFRA issues are assessed.

    Note:

    If the related partner return is controlled by Appeals, they will resolve the nonTEFRA issues and return the case to the area office to be suspensed in the appropriate location. When the TEFRA proceeding is completed, the area office will compute and assess the results of the TEFRA proceeding.

  4. For TEFRA related Joint Committee and/or corporate LB&I, CIC corporation, or other corporate specialty cases, the CTF controlling the key case return will notify the field when the TEFRA issues are resolved. The campus will forward a closing package to the field so they can prepare an audit report reflecting the pass-through adjustments.

    Note:

    Appeals, for cases they control, 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 returs 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.

4.31.3.4.7.2  (06-11-2013)
NonTEFRA Partner Issues With Unresolved TEFRA Partnership Issues

  1. If the nonTEFRA issues are resolved before the TEFRA issues, the nonTEFRA issues will be closed using normal closing procedures; however, the return is processed as a partial assessment.

    1. If the nonTEFRA issues are agreed, then:

      The examiner secures an agreement in the format prescribed in IRM 4.10.8, Report Writing. With the exception of Joint Committee, CIC corporation, and other corporate specialty cases, the examiner forwards the partner case file through Centralized Case Processing (CCP) for a partial assessment on the nonTEFRA issues. After the partial assessment, CCP forwards the case to the CTF with control of the partner return for suspense until resolution of the TEFRA issues. (See IRM 4.31.3.4.8.2 for instructions regarding the processing of Joint Committee, CIC corporation and other corporate specialty cases.)

    2. If the nonTEFRA issues are unagreed, then:

      The examiner prepares a report in the format prescribed in IRM 4.10.8, Report Writing. The partner case file is forwarded following nonTEFRA closing procedures. If a protest is filed on the nonTEFRA issues before the TEFRA issues are resolved, the case is forwarded from the Technical Services, to Appeals. Appeals forwards the case to the CTF with control of the partner return for suspense if the TEFRA issues remain unresolved after Appeals consideration. (See IRM 4.31.3.4.8.2 for instructions regarding the processing of corporate LB&I, CIC corporation, Joint Committee, and other corporate specialty cases.)

    3. If the nonTEFRA issues are no changed, then:
      The examiner prepares a report in the format prescribed in IRM 4.10.8, Examination of Returns, Report Writing. The examiner forwards the partner case file through CP to the partner CTF for suspense until resolution of the TEFRA issues. If the case is a CIC corporation or other corporate specialty, it will be returned to the examination group for suspense.

4.31.3.4.8  (06-04-2004)
Suspension of TEFRA Related Investors

  1. In general, all linked TEFRA investors will be suspensed at either the Brookhaven or Ogden Campus.

  2. The Brookhaven CTF will work all Small Business/Self Employed (SB/SE) key cases and their related investors, with exceptions. (See IRM 4.31.3.4.8.1)

  3. The Ogden CTF will work all Large Business and International (LB&I) key cases and their related investors, with exceptions. (See IRM 4.31.3.4.8.2)

  4. Investors will be completely worked in the campus where they were first linked. For example, partner S is linked to an SB/SE key case and suspensed in Brookhaven. If Ogden links partner S to an LB&I key case, that partner will stay suspensed in Brookhaven until completion of all linkages. The partner case file will remain at Brookhaven even if the SB/SE linkage closes first and only an LB&I linkage remains.

4.31.3.4.8.1  (06-11-2013)
Field Suspense of SB/SE Investors

  1. TEFRA related partner returns that are other corporate specialty cases (Forms 1120 with letters after the 1120 other than A, S, or X) are forwarded to the field office by the CTF with a package received indicator of "R" .

  2. The field will also hold all partner returns where the TEFRA statute is controlled at the partner level.

  3. These cases will be suspensed in the group.

  4. Joint Committee cases will be suspensed in the group until the TEFRA issues are resolved. Once resolved, those cases will be accepted by Joint Committee.

4.31.3.4.8.2  (06-11-2013)
Field Suspense of LB&I Investors

  1. TEFRA related partner returns that are CIC corporation, Joint Committee, or other corporate specialty cases (Forms 1120 with letters after the 1120 other than A, S, or X) are forwarded to the territory office by the CTF with a package received indicator of "R" . The following paragraphs relate to the returns described in this paragraph.

    Note:

    The CTF may forward some cases that are not CIC to the field if other related years are CIC. For example, an adjustment is made to an earlier non-CIC year that impacts an NOL. There are later years impacted by that NOL that are CIC. The campus will forward those returns to the field to be worked since the earlier year adjustments will impact those later CIC years.

  2. If the sole reason for the case to be in the field is for suspense because of an unresolved TEFRA issue, the partner return will be suspensed in the examination group that has control of that return for that year after the group has had all other nonTEFRA adjustments processed.

  3. If the return was previously examined and that examination is closed except for the unresolved TEFRA issues, the return will be returned to the examination group that completed the examination (or the exam group who had last control of the case when it was agreed, went to Appeals or was litigated for other issues). When the TEFRA proceedings are completed, the examination group will compute and assess the results of the TEFRA proceeding.

  4. If the return was never examined (i.e. surveyed), the return will be suspensed with the examination group that would have been assigned the return had it been examined.

  5. The field will also hold all partner returns where the TEFRA statute is controlled at the partner level.

  6. The return will not be suspensed in the PSP function and under no circumstances will the return be suspensed in the CTF.

  7. When the only issues remaining are the unresolved TEFRA issue(s), the group should update the AIMS status code to 14 and the statute date to an "HH" alpha code.

4.31.3.4.8.3  (06-11-2013)
Carryback and Carryover Returns

  1. The campus will suspend all prior and subsequent partner returns that may be impacted by a partnership level adjustment, unless they are 1120 speciality, CIC or JCT. or AC case.. These returns will be held in suspense pending the outcome of the partnership examination. Carryback and carryover years cannot be linked on PCS.

  2. If the field has AIMS control of a potential carryback or carryover return, the campus will input a Freeze Code 6 to prevent the return from closing. CCP will forward the return to the CTF after processing the partial closure.

4.31.3.4.9  (05-31-2005)
Follow-Up Procedures for Returns

  1. Research IDRS using CC AMDIS (or AMDISA), CC TSUMY, IMFOL, BMFOL and/or PCSMY.

    1. If the partner return is established on AIMS in another employee group code, contact that function for a copy of the return and note the partner file history sheet.

    2. Send that function a copy of the " FLOW THROUGH NOTIFICATION Charge-Out" ; alert them to make a partial assessment and route the return to the CTF after resolution of their issues.

    3. If the partner return is LB&I CIC corporation, Joint Committee or other corporate specialty, send the Flow Through Notification Charge-Out to the function with the return and do not request a copy of the return. The CTF will not be making any adjustments to the partner return. The area with control of the return will be suspensing that return awaiting the results of any TEFRA examination(s) and will make any necessary adjustments when the examination results of the key case flow-through entity(ies) are known.

  2. If the status or employee group codes have not been updated, attempt to locate the return using the following steps:

    1. Research for a better DLN and order the return from files using CC ESTAB;

    2. Research IDRS using CC TXMOD with a definer "A" to identify an open case control in an area other than Examination (IMFOL or BMFOL may be utilized to find a "route" for a TXMOD);

    3. Research the MFT for TC 922; if present, contact the Underreporter Function for a copy of the return and coordination of any proposed assessments; and

    4. If after performing follow-up steps, the partner CTF is still unable to secure the original return, contact the taxpayer for a copy using Letter 4641-C. Do not contact the taxpayer if there is a "Z" Freeze or a TC 914 on the taxpayer account. If there is a "Z" Freeze or TC 914 on the taxpayer account, give the file to the TEFRA Coordinator for immediate, appropriate action.

4.31.3.4.10  (06-04-2004)
Partner Cases Transferred to CTF

  1. Returns are transferred into the CTF in status code 34, EGC 5817.

  2. The CTF will screen and process all partner cases transferred in from the area as follows:

    1. Secure a TSUMYI print to verify that the return is linked to a TEFRA key case. If no linkage is shown, check to see if the return is needed for a carryback or carryover issue. If the return is not needed, reject the transfer by updating AIMS to the prior employee group code and status code and return the case to the area or to the function, which initiated the transfer.

    2. Order a TXMOD, IMFOL or BMFOL to determine that necessary partial adjustments were assessed.

    3. If partial agreements were secured and have not been assessed, return the partner file to the originating office for assessment provided adequate time (more than six months) remains on the statute. Update AIMS to the prior originating office employee group code and status code. Retain a copy of the return in the TEFRA suspense file.

    4. If adequate time does not remain on the statute, the CTF must make the partial assessment. Provide feedback to the originating office.

    5. Upon verification of the assessment, identify the TEFRA linkages and reconcile the return to the Schedules K-1. Identify any potential carryback and carryover issues. Update AIMS to employee group code 5818 and status code 34. File the partner file in the partner suspense files.

    6. If a partner suspense file was already created, combine the contents of this file with the return package and refile in the partner suspense inventory.

4.31.3.4.11  (06-11-2013)
Receipt of Amended Returns and Claims

  1. The CTF will screen and process all amended returns and claims received. Amended returns and claims include the following:

    1. An advance payment of deficiency and interest;

    2. An attempted removal from the TEFRA proceedings;

    3. An adjustment related to a TEFRA partnership;

    4. A Form 1045, Application for Tentative Refund, based on a carryback from or to a suspensed year;

    5. Protective claims, see IRM 4.31.4.2.6 (for protective AARs) or for a claim not related to the TEFRA key case the claim should be processed per IRM 21.5.3.4.7.3.2, Processing Protective Claims; and

    6. NonTEFRA issues resulting in a claim for a refund or an additional balance due.

  2. Procedures to follow upon receipt of a Form 1040X, Amended U.S. Individual Income Tax Return, and/or other taxable claim (Form 1120X, 1041X) are:

    1. Secure the partner file from the suspense files and associate the document (timely) with a TSUMYI print and an IMFOLT/BMFOL print;

    2. Forward all taxable claims to a technical employee for screening, and update AIMS to EGC 5808 (local option);

    3. Screen the document(s) to see if the amended return or claim relates to a TEFRA return. Perform a technical screening to determine whether:

      • The necessary assessments have been made, and if an assessment is required, ensure that it is made
      • The claim is allowable
      • A formal claim disallowance is required
      • The taxpayer needs to be advised that the claim filed is related to a TEFRA examination
      • The amended return or claim (including protective claims for nonTEFRA cases) is worthy of examination and requires forwarding to the field for examination

    If Then
    The amended return or claim is not worthy of examination and does not require forwarding to the area office Update the AIMS employee group code to 5818 and refile in the CTF suspense file.
    The amended return or claim is worthy of examination Update to the area PBC, SBC and EGC, make a copy of the document(s) for the CTF suspense file, and forward the original amended return and/or claim to the area office.

  3. Generally, taxable amended returns that address TEFRA issues related to an open key case examination should not be assessed before the proceedings are completed. However, if the taxable amended return is accompanied by a payment, the assessment should be made. A "deficiency" does not include amounts paid (i.e., amounts "collected without assessment"). I.R.C. 6211(a)(1)(B). A "deficiency" also does not include amounts shown on the taxpayer's return. "Return" for this purpose includes an amended return, unless the amended return indicates that the amounts are disputed. Treas. Reg. 301.6211-1(a) (last sentence). The payment eliminates the deficiency.

  4. If there is any possibility that the "payment" can be construed as merely a "deposit" rather than a payment, or if the amended return indicates that the additional amount is being disputed, then the assessment cannot be made until the TEFRA proceeding is complete.

  5. Taxable amended returns that do not address any TEFRA issues should also be assessed.

  6. Claims that address TEFRA related issues related to an open key case examination should not be refunded.

  7. If the claim includes other non-pass through adjustments that result in an overstatement in income or understatement in loss will be noted in the file, and will not be processed until the TEFRA proceedings are completed. The additional loss will not be processed immediately to provide the maximum interest offset to the taxpayer. If the taxpayer wants the income or loss processed, it is recommended to get that request from the taxpayer in writing. As part of the request, the taxpayer should explain that they understand that any future assessment as a result of the TEFRA examination may result in additional interest than would be charged otherwise. The partner claim will associated with the original file after all appropriate action is taken.

4.31.3.4.12  (10-01-2010)
Tiers

  1. Each CTF must identify TEFRA partner returns that are flow-through entities (tiers).

  2. Following are the procedures for tier returns:

    1. All BMF returns (Form 1041, Form 1065, Form 1120, U.S. Corporation Income Tax Return, and Form 1120S) should be screened by revenue agents for nonTEFRA and potential carryback or carryover issues;

    2. Generally, all tiers with more than 50 partners should be reviewed by revenue agents to determine if linkage is warranted. (100 partners for LB&I key cases.) The decision to link, or not link should be notated in the case file. There may be instances where it will be necessary to contact the field regarding the potential key case adjustments. Due to the amount of time it takes to secure returns, the campus should always err on the side of linkage if there is any question in whether or not to link. These cases should have a higher priority than regular non-statute work.

    3. Tier returns not linked will be considered a no-load tier. No load tiers should be coded on PCS according to IRM 4.29.2.2.5.

    4. The entire partnership structure should be considered when making a decision not to load a tier. As a best practice, a prior YK1 map or similar tool should be reviewed if available. The structure of a partnership may be such that adjustments will appear to be de minimis when looking at the mid level tiers. However, all the adjustments may ultimately flow down into only a few partners. Seeing the entire partnership structure will assist the agent in determining whether a tier should be loaded. Also, PCS should be checked to determine whether other linkages exist. Multiple linkages may increase the likelihood of a significant adjustment.

    5. If the potential adjustments are material, Form 8341 will be prepared to establish PCS linkage using CC TSLOD to link the partners, shareholders, or beneficiaries to the tier;

    6. The Schedules K-1 (and any Schedule K-1 attachments) from the tier should be copied for establishment of the partner files; under NO circumstances should the original Schedules K-1 be used to establish the partner files;

    7. Special care should be taken when a tier is a partner in two or more key cases (this is called a multi-linked tier), or is a key case in its own right;

    8. When a Form 886-S, Partners' Shares of Income, Deductions, and Credits, a Form 886-W, Beneficiary's Shares of Income, Deductions, Credits, Etc., or a Form 886-X, Shareholders' Share of Income, Deductions, and Credits is used to reflect the distributive share of income (loss), the report writer must note whether the individual partner, shareholder, or beneficiary should be closed as a full closure, or as a partial closure and then suspensed;

    9. When the tier partner returns are received, they should be screened for nonTEFRA issues, discrepancies in Schedule K-1 reporting and/or carryback or carryforward issues; and

    10. Tiers linked with their investors must have reports written even if the adjustments to the partner returns at this level are not material.

    11. The one-year date for multiple level tiers should be input on PCS in a timely manner even though the flow-through tier reports may not be prepared until a later date.

4.31.3.4.12.1  (10-01-2010)
Electing Large Partnerships

  1. An electing large partnership (ELP) may be a tier. If an ELP is a tier, all adjustments will be addressed at the partnership level.

  2. It is important to verify that the ELP is still filing returns. If the ELP stops filing returns, the underlying partners for those years under examination may need to be linked. If this occurs, please discuss the appropriate action with your TEFRA Coordinator.

  3. In the event the ELP ceases to exist at the time the adjustments are determined, then the adjustments are flowed through to the underlying partners. Depending on the size of the partnership it may not be necessary to link all of the partners.

4.31.3.4.13  (06-04-2004)
Responding to Field Requests for Returns

  1. Both of the CTF's will establish a liaison to respond to area requests for tax returns. The name, address, and telephone number of the identified liaison will be distributed to all local TEFRA coordinators.

  2. The CTF will keep a copy of each return forwarded to the field in the suspense file, and send the original to the requestor via a Form 3210. The requesting agent 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.

  3. The CTF will update the partner's activity record to indicate that the original return was forwarded to the area.

  4. The CTF will ensure that the AIMS data base was updated to reflect the requesting office's status, PBC, SBC and EGC codes, and the correct statute date.

  5. Copies of returns for court requests will be certified and processed following "blue ribbon" procedures.

4.31.3.4.14  (06-11-2013)
Notice of Bankruptcy

  1. Collection (Bankruptcy Section) will notify Examination of all bankruptcy proceedings by sending a computerized listing of new bankruptcy cases. The PCS Report 5-4 will also notify the CTF of a linked partner's bankruptcy filing.

  2. The CTF will follow the procedures listed below when advised of a bankruptcy:

    1. Determine the one-year assessment statute date and input it on the PCS (or to the longest period allowed on the PCS). Generally, the one-year assessment statute date is one year from the date on which the taxpayer filed for bankruptcy, although the actual limitation on assessment may be longer. Consult Area Counsel if the IRC 6229(f) period may expire prior to assessment.

    2. Remove the partner TEFRA indicator on PCS (see note below). Two changes (box 11 on Form 8339) are needed to properly remove the TEFRA indicator and identify the taxpayer's bankruptcy filing. Input TSCHG Item No 22-B and 29-B in box 11. (To input both of these changes may require it be done in two steps.) If the partner has more than one linkage to a key case, these TSCHG items are required for all key case linkages.

    3. Input the literal "Bankrupt" in the partner's user special message field.

    4. Forward a Form 3210 to the key case CTF clearly marked with the one-year assessment statute date and the notation "Bankruptcy - TEFRA partner" .

    5. If the partner is controlled in the field the CTF will send a Form 3210 clearly marked with the one-year assessment date and the notation "Bankruptcy - TEFRA partner" to the key case agent shown on AIMS (see note below). The field office 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.

  3. See IRM 4.31.7, TEFRA Bankruptcy, for more details.

    Note:

    For joint returns, the Form 3210 should be noted "See Jewell Dubin vs. Commissioner" .

4.31.3.4.15  (02-29-2008)
Fraud Considerations

  1. Each CTF must evaluate its inventory for potential fraud cases.

  2. Criminal Investigation (CI) controlled cases must be handled using the following procedures:

    1. When an AM424 reject shows that a CI freeze code TC 914 is on a partner's module, AIMS and PCS controls cannot be established. The key case CTF will establish the partner account on non-Master File. The CTF will coordinate with CI to reverse the freeze. When the freeze is removed, Master File linkage will be established.

    2. If the CI freeze code TC 914 cannot be reversed, agreement must be reached with CI on issuance of TEFRA notices and procedures for assessments.

    3. If CI determines that an partner account is subject to their jurisdiction, the partner will be removed from TEFRA suspense.

    4. The partner must receive notice in accordance with Treas. Reg. 301.6231(c)-5. Delegation Order 4-19 (20) allows SB/SE Area Directors of Compliance; LB&I Industry Directors; Appeals Director, Technical Services; and Appeals Directors, Field Operations to issue such notices.;

    5. The partner TEFRA linkage indicator will be removed using CC TSCHG. If the partner has more than one key case linkage, using TSCHG to remove the linkages is not possible. The key case CTF(s) must use CC TSDEL to remove the linkages.

    6. Notification that the partnership items have converted to nonpartnership items and that no more notices should be issued to the taxpayer will be sent to the key case CTF, if different from the partner CTF, via Form 3210. The key case CTF office 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.

4.31.3.4.16  (05-31-2005)
Form 906

  1. When a Form 906, Closing Agreement on Final Determination Covering Specific Matters, is received by a partner CTF, a TSUMYI (or TSINQI) print will be secured and associated with the Form 906.

  2. The TSUMYI or TSINQI print and Form 906 will be forwarded to the Technical Unit for review.

  3. The Technical Unit will review for the following:

    1. Ensure that the Form 906 applies to a TEFRA issue;

    2. Ensure that the Form 906 is valid and properly countersigned; and

    3. Determine if nonTEFRA issues are open under old Form 872, Consent to Extend the Time to Assess Tax, or Form 872-A, Special Consent to Extend the Time to Assess Tax.

    Note:

    A statutory notice may terminate these extensions. Contact Area Counsel if this situation exists.

  4. The one-year assessment statute date must be determined and input on PCS using CC TSCHG. The literal "Form 906" will be input in the PCS user special message field using CC TSCHG. A copy of the Form 906 will be transmitted via Form 3210 to the key case CTF, if different than the partner CTF, who will note on the Form 886-Z. "906 secured - issue no notices to the taxpayer." The key case 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.

  5. The Form 906 will be associated with the partner's suspense file. If the CTF has control of the AIMS data base, it will be updated to status code 34, EGC 582X or 583X. The partner file is then forwarded to the Report Writing Unit as outlined in text IRM 4.31.3.12.

  6. The Report Writing Unit will process the Form 906 as a Form 870-PT as outlined in text IRM 4.31.3.7 .

  7. Chief Counsel attorneys and Appeals Officers have been advised of the problems caused by Form 906's that affect TEFRA investors and/or issues. Many taxpayers, practitioners, and attorneys still prefer to use a Form 906 in resolving their case.

4.31.3.4.17  (06-11-2013)
PCS 4-4 Report

  1. The PCS 4-4 report is a listing of all returns on PCS with a one-year assessment statute date. The report is used to monitor TEFRA statutes to ensure partner returns are assessed in a timely manner.

  2. The report can be sorted electronically to provide each unit with a listing of their statutes.

  3. The campus also generates a listing for the field for all statute cases that they control. These listings are sent monthly to each TEFRA Coordinator by Area. Each Coordinator has specific groups that they are assigned based upon their geographic location.

  4. The campus should follow up directly with the field if a statute is within 60 days. This is to ensure the field is aware of the impending statute.

4.31.3.4.18  (06-11-2013)
Combat Zone

  1. The combat zone freeze must be released before a case can be established on AIMS. Contact your local AIMS Coordinator to release the freeze.

4.31.3.5  (06-04-2004)
Notice Packages

  1. The following subsections provide explanations of notice packages.

4.31.3.5.1  (05-31-2005)
60-Day Letter

  1. When the TEFRA Key Case examination is completed, the case is forwarded to area Technical Support for preparation of the 60-day letter package.

    1. The 60-day procedures must be followed whether the key case is agreed, unagreed, or no changed if at least one partner did not execute a Form 870-PT or Form 870-LT.

    2. Technical Services will prepare a 60-day letter for the TMP and for the TMP's power of attorney (POA), if applicable, but only if the partner requests that the power cover TEFRA proceedings in a statement furnished to the Service.

    3. The package will be forwarded electronically to the CTF using the shared drive or IMS.

    4. The CTF will review package for completeness and acknowledge the Form 14434, TEFRA Electronic Package Check Sheet within 3 days of receipt.

  2. The 60-day package must contain the following:

    1. An original undated 60-day (Letter 1827(DO)) letter addressed to the "Tax Matters Partner" for the partnership and signed on behalf of the appropriate designated field official;

    2. A Form 870-PT (a Form 870-LT with Letter 1829(DO) may be appropriate in certain circumstances) addressed to the TMP including a schedule of adjustments which shows all adjustments to each adjusted item;

    3. A complete copy of the revenue agent's report including the Form 4605-A, Examination Changes-Partnerships, Fiduciaries, S Corporations and Interest Charge Domestic International Sales Corporations, an explanation of all adjustments, and the appropriate distribution schedule;

    4. If applicable, a copy for the POA of the 60-day letter addressed to the TMP, with the cover letter (Letter 937);

    5. A copy of the completed 60-day letter addressed to the TMP (One copy to accompany mail out, one to keep in the case file, and the last to send back to the originator to show proof of mail out);

    6. A Form 886-Z with correct distributive shares completed for each adjusted item;

    7. A supplemental report for penalties, if applicable, including statutory notice language (not used for tax years ending after August 5, 1997); if penalties are not applicable, it should be noted in the package; and

    8. A completed Form 14434, TEFRA Electronic Package Check Sheet verifying all required items are included in the 60-day letter package.

  3. If the package is incomplete, Technical Services will be contacted. The CTF will attempt to perfect the package without returning it to Technical Services. Packages with major omissions will be returned to Technical Services for perfection.

4.31.3.5.2  (06-11-2013)
Processing of 60-Day Letter

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

    1. Unlinked notice investors must be re-linked using CC TSLODA, and the partner's Schedule K-1 name and address must be input using CC TSCHG. Research for the most current address available.

    2. If a correct TIN was not identified, an NMF database must be established using CC AMNON before input of TSLODA.

    3. All investors who had their partnership items converted to nonpartnership items must have the "TEFRA" indicator removed.

    4. DO NOT use a one-year assessment date to prevent notices from being generated, because entering a one-year date will distort PCS reports.

  2. The CTF will input a penalty/affected item code on the key case record using CC TSCHG, if the key case examiner is proposing penalties or affected items. The code on the PCS record will indicate whether the penalty claim is legitimate. The penalty/affected item code will also cause the correct forms with the appropriate attachments to generate.

  3. The CTF will generate partner 60-day letters using PCS CC TSNOT2. When the letters are received, the CTF will verify that there is a letter for each partner by comparing the certification listing to Letter 886-Z. If any partner letters are missing or incorrect, they may be reissued by PCS using CC TSNOT2, or a manual letter may be prepared.

  4. A copy of the partnership schedule of adjustments will be attached and sent with each partner letter. A copy of the explanation of items can be secured from the TMP.

  5. The CTF will date stamp the TMP letter with the same date as the partner letters. The original 60-day letter addressed to the TMP (and the POA, if applicable) and one copy will be mailed with a field office return address envelope or with the address label provided.

    1. Partner letters will be folded and enclosed in envelopes bearing the return address of the CTF, including a return envelope for the partner.

    2. The 60-day certification listing will be initialed and dated and all letters, including the TMP (and POA, if applicable), will be mailed simultaneously.

    3. A dated copy of the 60-day letter issued to the TMP (and the POA) and a copy of the certification will be forwarded to Technical Services with a Form 3210.

    4. Whatever enclosures are sent to the TMP must also be sent to the POA, if applicable.

  6. The key case administrative file will be documented and a copy of the 60-day letter and the certification will be placed in the file. The CTF should mail the 60-day letters within 45 days of receipt of an acceptable 60-day letter package from Technical Services.

4.31.3.5.3  (06-04-2004)
Protest of 60-Day Letter

  1. Protests to 60-day letters must be immediately forwarded to Technical Services with a Form 3210 to the area controlling the key case.

  2. When more than 45 days have elapsed after issuance of the 60-day letter, telephone contact should be made with the TEFRA Coordinator in Technical Services to advise them of the protest in order to prevent premature default of the 60-day letter.

4.31.3.5.4  (10-01-2010)
Appeals Settlement Letter

  1. Appeals will direct the key case CTF to issue settlement letters to investors in TEFRA entities that were protested by forwarding a settlement package using a Form 14298.

  2. The CTF must mail the settlement offers within 30 days of receipt of the Form 3210 from Appeals.

  3. The CTF will review the package for completeness and acknowledge the Form 14298 within 3 days of receipt. The settlement package must contain the following:

    1. A Form 14298 annotated as a settlement offer package which clearly reflects the key case name, tax year, EIN, and statute date;

    2. A Form 5402, Appeals Transmittal and Case Memorandum;

    3. A letter to the TMP, (generally not applicable);

    4. A Form 870-PT(AD) or Form 870-LT(AD), including a schedule of adjustments which identifies the items adjusted and the amount of each adjustment;

    5. If available, include a copy of the docket sheet;

    6. A copy of the Appeals Case Memo (ACM) (formerly, supporting statement) for the partnership marked "Information Only - Do Not Mail to Taxpayer." ;

    7. A Form 886-Z with corrected distributive shares for each adjusted item as reflected in the settlement offer (Appeals does not use Form 886-Z for a no change settlement.);

    8. A completed Form 4605-A (Appeals does not use Form 4605-A for a no change settlement);

    9. Penalty information. For tax years after August 5, 1997, penalties are included on Form 4605-A. Penalty information includes the following:

      • An instruction to mail penalty notices to non-notice partners, if necessary;
      • If the TMP has signed an agreement to bind non-notice partners, a special insert is sent to non-notice partners explaining that they should sign for penalties if they wish to accept the offer;
      • Special instructions, if any, for the mailing of penalties; and
      • If penalties are not applicable, it should be noted in the package.

  4. If the package is incomplete, the CTF will take every action to coordinate with Appeals in order to perfect it. All avenues should be exhausted before sending a case back. As a last resort, only packages with major omissions will be returned to Appeals for perfection. Major omissions include missing one or more of the following:

    1. A Form 5402;

    2. Appeals case memos (formerly supporting statements), if not included on the Form 5402;

    3. A missing Form 886-Z (Appeals does not use Form 886-Z for a no change.);

    4. A missing Form 4605-A (Appeals does not use Form 4605-A for a no change.); and/or

    5. An omitted schedule of adjustments.

  5. If penalties or affected items are proposed, the CTF will ensure that the penalty/affected item code is present on the PCS. If necessary, the penalty/affected item code will be input using CC TSCHG.

  6. Appeals settlement letters are generated by PCS to all linked investors when CC TSNOT4 is input, and to all TEFRA linked investors when CC TSNOT5 is input. Only TSNOT4 will generate the Form 870-LT(AD) for cases with a penalty/affected item code.

  7. When the PCS generated letters are received, the CTF will verify that there is a letter for each linked partner who should receive a notice by comparing the certification listing to the Form 886-Z or Report 22-3.

    1. If it is determined that additional letters are needed, they will be generated by the PCS or manually prepared.

    2. A copy of the schedule of adjustments received from Appeals will be attached to each partner letter.

    3. 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 investors.

  8. After the Appeals certification listing is verified and signed, and letters are mailed, one copy of the certification listing will be forwarded to Appeals for inclusion in the key case return file; one copy is placed in the key case administrative file with the settlement offer package. The key case administrative file will be noted with all actions taken.

  9. Form 870-PT(AD) and Form 870-LT(AD) 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.

4.31.3.5.5  (06-11-2013)
No Adjustments

  1. No adjustment packages are forwarded to the key case CTF with a Form 14434, TEFRA Electronic Package Check Sheet from Technical Services. The Form 14434, TEFRA Electronic Package Check Sheet will reflect the name, tax year(s), EIN, statute date, and the package should contain the following:

    1. One copy of the No Adjustment Letter (Letter 2621) the Revenue Agent sent to the TMP, as required;

    2. A Form 4605-A showing that no adjustment has been made; and

    3. Form 886-Z clearly labeled "No Adjustment" on the top of the form.

      Note:

      Appeals will use Form 5402 instead of Forms 4605-A and 886-Z.

    The statute date will vary depending upon the issue date of the Letter 2621. The OYD input will be the shorter of the key case statute, or one year from the date the Letter 2621 was issued. Since no FPAA was issued, there is no OYD that will extend past the natural statute of the key case.

  2. The key case unit will prepare a package for each partner containing the following:

    1. One copy of Letter 2621, No Adjustment Letter;

    2. Form 4605-A; and

    3. Form 886-Z clearly labeled "No Adjustment" on the top of the form.

      Note:

      Appeals package will only have a copy of Form 5402. Appeals does not use Form 4605-A or Form 886-Z.

  3. The packages will be sent to the partner(s) CTF.


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