4.71.4  Discrepancy Adjustments

Manual Transmittal

June 20, 2014

Purpose

(1) This transmits revised IRM 4.71.4, Employee Plans Examination of Returns, Discrepancy Adjustments.

Background

IRM 4.71.4 contains procedures for examining, processing and closing Forms 1040, U.S. Individual Income Tax Return, and 1120, U.S. Corporation Income Tax Return, discrepancy adjustments.

Material Changes

(1) This revision makes minor clarifying corrections to the April 9, 2012, published version of IRM 4.71.4.

(2) The links to the IRM Exhibits have been updated. The Exhibits are now posted on TE/GE Connect under the JOB tab at IRM 4.71 - Employee Plans Examination Exhibits.

Effect on Other Documents

This supersedes IRM 4.71.4 dated April 9, 2012.

Audience

TE/GE Employee Plans

Effective Date

(06-20-2014)


Robert Choi
Director, Employee Plans
Tax Exempt and Government Entities Division

4.71.4.1  (06-20-2014)
Overview of the Discrepancy Adjustment Program

  1. Chief Counsel has concluded that discrepancy adjustments do not constitute an inspection of the taxpayer’s books and records within the meaning of IRC 7605(b) . Thus, discrepancy adjustments applied in accordance with these procedures will not constitute an examination of the taxpayer’s books and records as long as these guidelines are followed. If these guidelines are not followed, then SB/SE, W&I, and LB&I (Examination Functional Units) may have to institute reopening procedures for a return that TE/GE Division is deemed to have examined.

  2. In order to reduce the number of referrals to the Examination Functional Units (EFUs) for minor adjustments to income, the discrepancy adjustment program was established. This program allows EP agents to make certain line item adjustments to income tax returns with respect to issues arising from an examination of a return of a qualified retirement plan or other non-return retirement arrangements such as SEPs, SIMPLE IRAs, IRC 403(b) plans or IRC 457 plans. Discrepancy adjustments may be prepared with respect to tax adjustments to —

    1. Form 1040, U.S. Individual Income Tax Return,

    2. Form 1040A, U.S. Individual Income Tax Return,

    3. Form 1040 EZ, Income Tax Return for Single and Joint Filers With No Dependents and

    4. Form 1120, U.S. Corporation Income Tax Return.

  3. An adjustment may arise when there is a discrepancy between information reported on an income tax return and facts developed during an employee plans examination.

  4. An adjustment may originate directly from a related TE/GE examination or any other information that TE/GE has access to, such as determination letter applications and/or compliance projects.

  5. Discrepancy adjustments fall within the scope of Rev. Proc. 2005-32.

  6. Adjustments are reported on Form 4549-E, Income Tax Discrepancy Adjustments, and the Revenue Agent's Report (RAR). The RAR is used as the primary narrative for the taxpayer, to explain the issues involved in making the adjustments to income and taxes due.

  7. These procedures are for EP agents, unless otherwise specified.

  8. Provisions enacted under the IRS Restructuring and Reform Act of 1998 (RRA) affect the procedures under this program.

4.71.4.2  (06-20-2014)
Referrals to an Examination Functional Unit (EFU)

  1. The Discrepancy Adjustment Program does not entirely preclude EP from referring discrepancy adjustments to an EFU. If the adjustment does not fall within the guidelines of the discrepancy adjustment program, a referral should be made to the appropriate EFU.

  2. Agents should make a referral to the appropriate EFU when the related income tax return:

    1. Is a Form 1120-S, U.S. Income Tax Return for an S Corporation,

    2. Is a Form 1065, U.S. Return of Partnership Income,

    3. Shows a net operating loss,

    4. Was filed by a taxpayer that has filed for bankruptcy,

    5. Was filed by a taxpayer that was dissolved, merged or sold,

    6. Is under the jurisdiction of LB&I or is listed in the Coordinated Examination Program (CEP) Identity File,

    7. Was never filed and no delinquent Form 1040 or Form 1120 will be secured,

    8. Is currently under examination by an Examination Functional Unit,

    9. Involves complex credit carry backs, or

    10. Involves capitalized pension or profit sharing costs.

  3. Situations described in a. through d. above, may be processed as discrepancy adjustment cases by EP agents with the concurrence of the affected Area Director.

    1. EP Area Managers and EFU Area Directors may develop local procedures.

    2. Any local procedures agreed upon should be coordinated with the Manager of EP Examinations, Programs and Review.

  4. Under certain circumstances it may be advisable to refer the discrepancy adjustment issues to the EFU (for example, if the related income tax return is complex or a more detailed inspection of income tax books and records is necessary to resolve the potential income tax issue).

  5. Related cases that are, or have been, examined by an EFU may be examined by an EP agent, however:

    IF... THEN...
    a. The return is open in an EFU The discrepancy issue will generally be referred to that examiner for resolution.
    b. The EFU has completed the examination EP will process the discrepancy adjustment.
    c. The return is in inactive status (for example, unassigned in an EFU) A referral should be made to the EFU.

    Note:

    The income tax return must be closed off the EFU’s Audit Information Management System (AIMS) before it can be established on EP AIMS as a discrepancy adjustment. Although it can take up to 365 days to drop off of the EFU’s AIMS from the time the case is closed by the EFU, the return may still be secured. However, it may be preferable for the EP agent to secure an amended return, if the return had been previously examined.

  6. The EP group manager, at his or her discretion, may refer any adjustment to an EFU if they determine that the adjustment may be better handled outside of Employee Plans.

4.71.4.3  (06-20-2014)
Identifying Discrepancy Adjustments

  1. The EP agent is responsible for identifying the discrepancy during the course of an examination, and initiating the discrepancy adjustment process.

  2. The agent should determine if the correct amount of income has been reported on the income tax return by researching the appropriate internal systems.

    1. A RTVUE or BRTVU printout may be used as an original return for this purpose.

    2. Alternatively, the agent may order the original return from the Service Campus using the ESTAB command code. Form 10373, IDRS Research Request, or Form 6882, IDRS/Master File Information Request, can be used for this purpose. Alternatively, the original return can be obtained from the Service Campus by leaving item P31 (Return Not Requested) blank on Form 5597, TE/GE IMF/BMF/EPMF Request, when establishing the tax return on AIMS.

4.71.4.3.1  (06-20-2014)
Examples of EP Issues

  1. The following are examples of EP issues that can result in discrepancy adjustments:

    1. Unreported income due to unreported or incorrectly reported distributions from plans

    2. Taxable allocations to participant accounts in defined contribution plans due to the revocation of the tax-exempt status of the plan's trust

    3. Taxable distributions to participants resulting from violations of IRC 72(p) loan limits

    4. Adjustment to taxpayer deductions for contributions to a plan due to non-payment, late payment, excess contributions, plan disqualification, etc.

    5. Unreported income from reversion of excess plan assets after a plan termination

    6. IRC 72(t) 10% additional tax on early plan distributions

4.71.4.4  (06-20-2014)
Processing Discrepancy Adjustments

  1. The EP agent is responsible for initiating the discrepancy adjustment process.

  2. During the course of his/her duties, each agent should be satisfied that the correct amount of income has been reported and the correct amount of tax paid.

  3. Procedures involved in successfully working a discrepancy adjustment follow.

4.71.4.4.1  (06-20-2014)
IDRS Research

  1. When it is determined that a possible discrepancy adjustment exists, the agent must research Information Data Retrieval System (IDRS).

  2. Obtain an AMDISA print to determine if a Form 1040 or 1120 return has been established on AIMS by any EFU.

    Note:

    If so, EP must contact the EFU to coordinate disposition of the issue. The discrepancy issue will generally be referred to that examiner for resolution.

  3. Secure and review BMFOLT (Form 1120) or IMFOLT (Form 1040) transcripts for each effected income tax return to determine the time remaining on the statute of limitations. These transcripts should be reviewed to determine if the:

    1. Statute of limitations needs to be extended.

    2. Return has already been examined by the IRS.

    3. Return was amended since it was initially filed.

    4. Service Campus has already made an assessment of tax related to the discrepancy adjustment under current consideration

    5. Service Campus has made any other adjustments to the return that was initially filed by the taxpayer.

      Note:

      Refer to Chapter 8 of Document 6209, IDRS Processing Codes and Information, for an explanation of Transaction Codes (TC) and Action Codes.

  4. Obtain an INOLES print to determine the last known address of the taxpayer.

  5. Obtain an IRPTRL print on the taxpayer (and taxpayer’s spouse if the applicable return is a joint return) to determine total income and total tax withheld.

  6. Obtain a RTVUE (Form 1040) or a BRTVU (Form 1120) print and review it to determine amounts taken into income, deductions taken, credits taken and tax withheld.

    Note:

    A RTVUE or BRTVU print will be accepted as the equivalent of a tax return if it provides sufficient detail to determine if there is a discrepancy, or if it gives sufficient line item detail to compute Form 1040 or 1120 income taxes.

  7. Include a copy of all IDRS research discussed in this section in the case file.

4.71.4.4.2  (06-20-2014)
Establishing the Case on AIMS and RCCMS

  1. Secure group manager approval before initiating a discrepancy adjustment and document concurrence on Form 5464, Case Chronology Record (CCR).

  2. If a discrepancy adjustment is warranted, establish the tax return on AIMS and Reporting Compliance Case Management System (RCCMS).

    Note:

    Form 5597 may be used for this purpose, or at the discretion of the group manager, the group may use its own internal form.

    .

  3. Discrepancy adjustments are now established on AIMS through RCCMS.

  4. If Form 5597 is used, complete the following line items:

    1. Item P7-8: Enter a source code of 87.

    2. Item P10-12: Enter the primary business code as follows:

      Primary Business Code Area
      401 Northeast
      402 Mid-Atlantic
      403 Great Lakes
      404 Gulf Coast
      406 Pacific Coast
    3. Item P20-23: Enter the examiner’s group code (i.e., 7653).

    4. Item P25-26: Enter an MFT of 30 for Form 1040. Enter an MFT of 02 for Form 1120.

    5. Item P28-29: Enter a status code of 12.

    6. Item P31: Enter 3 for return request indicator.

    7. Item P33-36: Enter the project code of the related Form 5500, Annual Return/Report of Employee Benefit Plan. If there is none, enter 0000.

    8. Item P48: Enter a flow-thru indicator of 1.

    9. Item P1-12: Enter the taxpayer’s EIN/SSN.

    10. Item A: Enter the taxpayer’s name. For Form 1040, the individual's last name should appear first, followed by a comma and the individual's first name and middle initial.

    11. Item P14-17: Enter the name control for the taxpayer.

    12. Item P19-24: Enter the tax period.

    13. Item P26-28: Enter the three digit activity code. Refer to Document 6476, Employee Plans Systems Codes.

    14. Item B: Enter the taxpayer’s address.

    15. Item C: Enter the reason for the establishment of the Form 1040 or 1120.

    16. Item D: Enter the examiner’s name, group number and date.

    17. Item E: Secure the group manager’s signature.

    18. Item 2: Enter the tax period and the applicable statute of limitations date. If the statute has been extended, also enter that date (statute update).

      Note:

      See IRM 4.71.4 Exhibit 1 at Employee Plans IRM Exhibits for an example of a completed Form 5597.

  5. The information on Form 5597 can also be used to establish the return on RCCMS and on AIMS through RCCMS.

4.71.4.4.3  (06-20-2014)
Statute of Limitations

  1. The EP agent has the responsibility to ensure that the statute of limitations date on any Form 1040 or 1120 is correct and protected as necessary. He or she should secure consents to extend the statute as needed.

    Note:

    Restricted consents should rarely be accepted on discrepancy adjustment cases. See IRM 25.6.1.10.2.7.3, Statute of Limitations, for the limited circumstances when restricted consents may apply and for special procedures to be followed.

  2. The correct statute of limitations date should be reflected on RCCMS and AIMS.

  3. Follow statute procedures in IRM 4.71.9, Statute Control Procedures. This includes preparation of Form 895-EP, Notice of Statue Expiration, to notify the agent of those assigned returns where the statute of limitations will expire within 270 days as required by IRM 4.71.9.3, Group Manager Responsibilities and Procedures.

  4. Agents may propose adjustments on returns with short statutes if the adjustments are significant.

    1. The agent should obtain group manager approval prior to issuing a "30 Day Letter" on a return with less than 12 months left on the statute.

    2. In such cases, Form 872, Consent to Extend the Time to Assess Tax, should normally be sent out with Letter 907-A at the same time the "30 Day Letter" is mailed to the taxpayer.

    Note:

    See paragraph (5) of IRM 4.71.4.4.5, Preparation of the Discrepancy Adjustment Package, for information about the "30 Day Letter."

  5. Regarding the use of fax and signature stamps:

    1. Preparer/taxpayer signature stamps are not permitted on Form 872.

    2. Form 872 will not be accepted if sent by fax.

    3. The taxpayer’s original signature is required on Form 872 to extend the statute of limitations.

4.71.4.4.4  (06-20-2014)
Time Reporting

  1. Discrepancy adjustment returns should be added to the agent’s WebETS as soon as established on RCCMS and AIMS.

  2. Any nominal time charges prior to RCCMS and AIMS establishment should be charged to the related return or activity.

  3. The appropriate activity code will depend on the type of return to which the adjustment applies.

    1. See Document 6476.

    2. Verify the AIMS generated activity code within RCCMS, and ensure that it agrees with the code used on WebETS , prior to closing the case.

  4. The project code should be the same as the code used on the related examination. If no other code is warranted, use "0000."

  5. Do not use a plan indicator on WebETS for a return for which a discrepancy adjustment is being made.

4.71.4.4.5  (06-20-2014)
Preparation of the Discrepancy Adjustment Package

  1. Use Form 4549-E to communicate the discrepancy adjustment to the taxpayer and to request taxpayer agreement with the proposed discrepancy adjustment. The "Other Information" section on page two of Form 4549-E should reflect the following comments in all cases:

    1. "This discrepancy adjustment does not constitute an examination of your tax return."

    2. "See the attached Revenue Agent Report for an explanation of the issue(s)."

    Note:

    A third comment should be included if IRC 6404(g) applies. See paragraph (2) of IRM 4.71.4.4.6, Penalties and Interest, for instructions when IRC 6404(g) applies.

    Note:

    See IRM 4.71.4 Exhibit 3 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Form 4549-E.

  2. Generate Form 4549-E using current Report Generation Software (RGS) software.

  3. Attach a Revenue Agent Report (RAR), which includes an explanation of the issue(s) being raised in the discrepancy adjustment package.

    1. The issue(s) should be clearly stated.

    2. The issue(s) should be clearly explained as specified in paragraph (4).

    3. Use Form 886-A, Explanation of Items, for your write-up of the issue(s).

  4. The RAR should be broken down into the following components:

    1. Issue(s)– The issues should be clearly stated. For example, if the issue is whether a participant loan is a taxable distribution under IRC 72(p), the issue might be stated as follows: "Whether a participant loan to Bobby Jones in the amount of $103,317 from the XYZ Corporation Profit Sharing Plan (the Plan) is a taxable distribution under IRC 72(p)."

    2. Facts– The facts section of the RAR will include a brief history of the plan and provide pertinent details surrounding the issue. This section should also cite any plan provisions relevant to the issues raised.

    3. Law– The law section should contain a summary of Code sections, Revenue Rulings, court cases, etc., that relate to the issue(s) raised. Do not cite General Counsel Memos (GCM) or Private Letter Rulings (PLR) as sources of authority in the RAR.

    4. Government's Position– This section should discuss each issue separately and apply the law and the facts relevant to each specific issue. This section should also provide a summary of taxes due and the applicability of penalties.

    5. Taxpayer's Position– This section should reflect the taxpayer's position including any rebuttals the taxpayer has made regarding the Government's position. If the taxpayer has not provided a position on the Issue(s), a simple statement to the effect that the taxpayer has not provided a response is sufficient.

    6. Conclusion– If the taxpayer provides a position on the issue(s), the RAR should contain a rebuttal to the taxpayer’s position. The Government’s position should be restated as a conclusion in all cases.

    Note:

    See IRM 4.71.4 Exhibit 11 at IRM 4.71 - Employee Plans Examination Exhibits for an example of an RAR.

  5. Use Letter 3605-A ("30 Day Letter" ) as the cover letter for the discrepancy adjustment package mailed to the taxpayer. See IRM 4.71.4 Exhibit 2 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Letter 3605-A.

    Note:

    Include only the tax deficiency and the penalties in the upper right under the "Tax Deficiency" and "Penalties" heading on the first page of Letter 3605-A. Do not include interest being assessed on Letter 3605-A.

  6. The discrepancy adjustment package consists of the following:

    1. Pub. 1, Your Rights as a Taxpayer,

    2. Pub. 5, Your Appeal Rights and How To Prepare a Protest If You Don't Agree,

    3. Pub. 504, Divorced or Separated Individuals, (if the subject return is a Form 1040 series return and the taxpayer was married),

    4. Pub. 594, The IRS Collection Process,

    5. RAR,

    6. Two copies of Form 4549-E,

    7. Penalty calculations (if penalties are being assessed),

    8. Interest calculations;

    9. Form 9465, Installment Agreement Request (optional) and

    10. Return Envelope.

  7. The EP agent will prepare the "30 Day Letter" and the discrepancy adjustment package and mail it to the taxpayer unless the discrepancy adjustment has been established because of a proposed revocation or proposed disqualification of the related "unagreed" plan examination.

  8. If an "unagreed" proposed revocation, or proposed disqualification case results in discrepancy adjustments being proposed and established, the EP agent should prepare the "30 Day Letter" and discrepancy adjustment package, but not mail them to the taxpayer.

    1. Close the discrepancy adjustment to EP Mandatory Review with the related "unagreed" Form 5500 case file.

    2. Mandatory Review will issue the "30 Day Letter" and discrepancy package, simultaneously with the issuance of the "30 Day Letter" for the proposed revocation/disqualification of the Plan.

  9. The "30 Day Letter" notifies the taxpayer of their rights, including Appeal rights.

  10. The "30 Day Letter" gives the taxpayer 30 days to respond. If the taxpayer does not respond within 30 days, the case can be closed "unagreed" to EP Mandatory Review. See IRM 4.71.4.6, Unagreed Case Procedures.

  11. Mail the discrepancy adjustment package by Certified Mail to the taxpayer's last known address.

    1. To obtain the taxpayer’s last known address, secure an INOLES print. INOLES reflects the address last given to the IRS through the most recent filing of a return by the taxpayer or other notification by the taxpayer.

    2. If the agent obtains knowledge through other sources, that the taxpayer’s address has changed subsequent to the address reflected on INOLES, he or she should mail the discrepancy adjustment package to that address.

  12. If the applicable return is a Form 1040 filed jointly:

    1. Mail separate packages to each spouse, even if they live at the same address. Use the last known address of each spouse (or former spouse if no longer married).

      Note:

      Each letter should be individually prepared and addressed. The primary social security number should be used on both letters.

    2. Secure separate Forms 2848, Power of Attorney and Declaration of Representative, for each spouse when the taxpayer(s) desire someone to represent them.

4.71.4.4.6  (06-20-2014)
Penalties and Interest

  1. The agent must determination whether penalties are appropriate.

  2. The negligence penalty under IRC 6662(b)(1) is the most commonly applied penalty on discrepancy adjustment cases.

  3. Per IRC 6751(b)(1), before certain penalties can be assessed, managerial approval is required (in writing).

    1. Per IRC 6751(b)(2), penalties assessed under IRC 6662 are not exempted from this requirement.

    2. When the agent determines that penalties under IRC 6662 should be applied, managerial approval must be secured before the "30 Day Letter" package is mailed to the taxpayer.

    3. For this purpose, managerial approval should be documented on Form 5464, Case Chronology Record.

  4. Assert any applicable penalties through the penalty menu in RGS. The program will automatically compute the penalties and provide an explanation of the penalties being included as part of the Form 4549-E report.

  5. The workpapers should include a brief discussion on the applicability of penalties and whether or not penalties are being assessed.

  6. Per IRC 6404(g), if the IRS does not provide a notice to the taxpayer (who has timely filed their tax return) specifically stating the taxpayer’s liability within a specified period of time, the IRS must suspend the imposition of any interest with respect to any failure relating to that return.

    Note:

    Section

    3305 of the IRS Restructuring and Reform Act of 1998 was enacted to provide for the suspension of interest in certain cases. This provision was incorporated into IRC 6404(g). The Small Business and Work Opportunity Tax Act of 2007 amended section 6404(g) and applies to notices issued on or after November 26, 2007. See Reg. section 301.6404-4 for an explanation of when 18 month or 36 month suspension periods apply.

    1. For 2005 returns filed after May 25, 2006 and for later years, interest will be suspended beginning on the day after the close of the 36 month period and ending on the date that is twenty-one days after the notice is provided. The "suspension period" begins 36 months after the later of (1) the date on which the return is timely filed, or (2) the due date of the return without regard to extensions.

      Note:

      See Examples 3 and 4 below.

    2. In all instances where interest is suspended, the "suspension period" ends 21 days after the date on which the IRS issues the required notice.

    3. "Notice" is considered to be made when the "30 Day Letter" (Letter 3605-A) is mailed.

    4. Suspension of interest under IRC 6404(g) applies only to timely filed returns (returns filed by the original due date or by the extended due date if a valid extension was filed).

    5. Suspension of interest under IRC 6404(g) applies only to individuals, not to corporations.

    6. Suspension of interest under IRC 6404(g) has an impact on discrepancy adjustments only with regard to the assessment of interest.

    7. If IRC 6404(g) applies, the suspension of interest begins on the day after the end of the 36 month (18 months for notices issued for timely filed Forms 1040 for 2004 or earlier years or 2005 if filed by May 25, 2006) period and ends on the day which is 21 days after the day the "30 Day Letter" package is mailed. The suspension of interest over this period is granted whether or not Form 4549-E is signed or tax is paid.

    8. IRC 6404(g) applies only if the "30 Day Letter" package is mailed to the taxpayer after the applicable suspension period has expired. For example, if on October 15, 2009, the "30 Day Letter" is mailed for a discrepancy adjustment being proposed on a 2006 Form 1040 that is timely filed on April 15, 2007, 6404(g) does not apply and interest should not be suspended for any period of time since the "30 Day Letter" package is mailed before the end of the 36 month suspension period.

    9. If IRC 6404(g) applies, interest should be calculated on Form 4549-E from the original due date of the Form 1040 return through the 36 month (or 18 month, if applicable) period.

    10. If IRC 6404(g) does not apply, interest should be calculated on Form 4549-E from the original due date of the return through 30 days after the date of the "30 Day Letter."

    11. IRC 6404(g) does not apply to any penalty imposed by IRC 6651, any case involving fraud, any "listed transaction" , or any criminal penalty.

  7. The following examples help illustrate the suspension period:
    Example 4: Assume Amanda Allen timely files her 2009 Form 1040 on April 15, 2010. Amanda neglects to include a taxable pension distribution in the amount of $150,000 on her Form 1040. A "30 Day Letter" package is mailed to Amanda on October 15, 2011 and Amanda signs Form 4549-E and pays the deficiency on November 15, 2011. Amanda owes interest on the deficiency from April 16, 2010 through November 15, 2011. The suspension of interest under IRC 6404(g) does not apply because notice was provided prior to the end of the 36 month suspension period.

  8. When the agent determines that penalties should be imposed on a Form 1040 or Form 1120 discrepancy adjustment, he or she should follow these requirements:

    1. Obtain managerial approval prior to assessing any penalty under IRC 6662.

      Note:

      Penalties under IRC 6651, IRC 6654, and IRC 6655 are exempted from the approval requirement.

    2. When imposing penalties, the agent must notify the taxpayer in writing that penalties are being assessed.

    3. The agent must give the penalty Code section and a computation of the penalty to the taxpayer.

    Note:

    See section 3306 of the IRS Restructuring and Reform Act of 1998.

  9. Every notice sent to an individual which includes an amount of interest due must also include a detailed computation of the interest charged and a citation to the Code section under which the interest is imposed.

    Note:

    See section 3308 of the IRS Restructuring and Reform Act of 1998.

  10. Interest is assessed on both taxes that are not timely paid and on penalties that are assessed.

4.71.4.4.7  (06-20-2014)
Taxpayer Responses to the "30 Day Letter" (Letter 3605-A)

  1. If the taxpayer submits information that changes the discrepancy amount or penalties (but does not eliminate it), issue Letter 2657 with a revised report to the taxpayer. See IRM 4.71.4 Exhibit 7 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Letter 2657.

  2. If the taxpayer submits information that does not change the original report, issue Letter 2658 along with a copy of the original report. See IRM 4.71.4 Exhibit 8 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Letter 2658.

  3. If it is determined that a more detailed inspection of books and records is necessary to resolve an income tax issue, refer the case to the appropriate EFU.

  4. In general, Reg. section 601.105(d)1 does not permit any extension of time to reply to a "30 Day Letter." However, as a matter of practice, extensions may be granted under reasonable circumstances such as:

    1. The taxpayer retains a representative and demonstrates a need for more time to prepare a meaningful protest.

    2. The taxpayer retains a new representative.

    3. Sickness or injury of the taxpayer or representative.

    4. Issues are complex and require extensive research.

  5. Requests for extensions of time to respond to the "30 Day Letter" should be in writing and should state the reason(s) why additional time is needed. Since many requests are made by telephone, the extension may be granted verbally and confirmed in writing upon receipt of the written request. Do not grant an extension if the statute of limitations will expire within 150 days and the granting of an extension will not leave sufficient time to process the case.

  6. Extensions should be approved by the group manager or a designated management official.

  7. The taxpayer should be notified in writing of the extension and the specific extended response date.

  8. Extensions are normally granted for no more than 30 days unless a specific reason supports additional time.

  9. If the taxpayer does not protest within the 30 day period, but previously indicated his/her intention to do so, send Letter 923-A to the taxpayer to allow an additional 15 days to file a protest. Send Letter 923-A no later than seven calendar days after the response date of the original "30 Day Letter" . See IRM 4.71.4 Exhibit 9 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Letter 923-A.

  10. If the "30 Day Letter" is returned as undeliverable to the address on file, then attempt to obtain the correct address.

    1. If the taxpayer’s correct address is determined, then re-mail the "30 Day Letter" to the new address.

      Note:

      The period in which the taxpayer may respond starts with the date the letter was re-mailed.

    2. If the taxpayer’s correct address cannot be determined, then the case will be processed as outlined in IRM 4.71.4.6.2, Failure of the Taxpayer to Properly Respond.

4.71.4.5  (06-20-2014)
"Agreed" Case Procedures

  1. Cases are considered "agreed" if one of two events occurs:

    1. There is an "agreed tax change" . In this instance, the taxpayer signifies agreement with the proposed tax change by returning a signed Form 4549-E to the agent. See IRM 4.71.4.5.1, "Agreed Tax Change" , below for further instructions.

    2. Additional information is provided that results in a "no change" . In this instance, the taxpayer provides information or the agent obtains information through other sources that verifies that no adjustment is warranted.

4.71.4.5.1  (06-20-2014)
"Agreed Tax Change"

  1. If a signed Form 4549-E is secured from the taxpayer or power of attorney (if authorized to sign on behalf of the taxpayer on Form 2848), the case is "agreed" .

    1. An "agreed" case may be closed without payment from the taxpayer; however, the agent should make a reasonable effort to secure full payment of taxes, interest and penalties (if applicable).

    2. If the taxpayer is unable to pay, see IRM 4.71.4.11 below for information on Installment Agreements.

  2. Regarding the use of fax and signature stamps:

    1. Form 4549-E reflecting additional tax of $250,000 or less can be accepted by fax if the agent has made taxpayer contact and documents in the case chronology the date of contact and the desire of the taxpayer to submit the Form 4549-E by fax.

    2. Form 4549-E reflecting additional tax in excess of $250,000 should be secured with original signatures.

  3. If there is an "agreed tax change," use disposal code 03 (RCCMS disposal code = 102).

    Note:

    If there is a related Form 5500 exam, close it with disposal code 04.

  4. If the total discrepancy adjustment to one taxpayer results in an over-assessment, or an "agreed" but unpaid deficiency of $10,000 (pursuant to the changes enacted under RRA 3103) or more, the agent must process the case within 22 calendar days (16 business days) after the agreement is filed or the over-assessment is determined.

  5. If payment is received, process the check in accordance with GAO recommendations:

    1. Make sure the check is made out to the United States Treasury. If the payee line is blank or the check is made out to "IRS" , overstamp the check with the "United States Treasury" stamp.

    2. Enter the check information (date of check, check number, amount, payer, IRS recipient name and date received) into the logbook required to be maintained by the group.

    3. Complete Form 3244-A, Payment Posting Voucher - Examination. See IRM 4.71.4 Exhibit 4 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 3244-A.

    4. Complete Form 3210, Document Transmittal, to accompany the payment being sent to the Service Campus. Include in the body of the Form 3210 the taxpayer’s name, SSN/EIN, tax return form number, amount of payment, and check number. If the payment applies to more than one tax period, note and itemize the breakdown on the Form 3210.

    5. Forward the Form 3210 and Form 3244-A to the group manager who will review the Form 3210, compare it to the Form 3244-A and sign the Form 3210.

      Note:

      The person who prepares the Form 3244-A cannot be the same person who signs the Form 3210.

    6. Make a copy of Form 3244-A, Form 3210 and the payment (i.e., check) to be retained in the case file.

    7. Send the check along with the Form 3244-A and Form 3210express mail (next day) to the Ogden Service Campus at the address listed in paragraphs (6) or (7) of this section, by the end of the next business day after receipt.

    8. If the check cannot be mailed to Service Campus the same day it is received, secure it in a locked file overnight.

    9. The check must be placed in a separate addressed envelope along with the completed Form 3244-A when placed within the express mail envelope.

    10. Send an email notification to the Ogden Teller Unit in accordance with paragraph (8) below.

    11. If the acknowledgement copy of Form 3210 is not received back from the Service Campus within 10 days after mailing, contact the Service Campus to follow-up receipt of the check. Document these actions in the group logbook.

    Note:

    Do not include a copy of Form 4549-E with the payment package sent to the Service Campus. Doing so may cause double assessment of tax to occur.

  6. Mail remittance less than $100,000 to:
    IRS
    Attention: Teller Unit
    1973 N. Rulon White Blvd.,
    Mail Stop 1999
    Ogden, UT 84201-1000

  7. If remittance of $100,000 or more is received, mail the check to the same address in paragraph (6) but use Mail Stop 2003.

  8. If the remittance is $100,000 or more, send an email to the teller unit to &CTR ODN Ogden Tellers with the following information:

    1. UPS tracking number

    2. Dollar amount of the remittance

    3. The city/state the package is being shipped from

  9. When addressing the Express Services Routing slip (Form 9814), the recipient name should be "Mail Supervisor" and the recipient phone number of (801) 620-3750 should be used. This is the case whether or not payment is remitted.

  10. Do not prepare a closing letter for discrepancy adjustments when there is an "agreed tax change" .

  11. If interest is being suspended in accordance with IRC 6404(g) as described in IRM 4.71.4.4.6, Penalties and Interest, follow these steps to notify the ESSP unit that interest is to be suspended:

    1. List the IRC 6404(g) notice date in the "Other Information" section of the file copy of Form 4549-E. Suggested language is as follows: "IRC 6404(g) does apply, and notice was provided on ___ (insert the date Form 4549-E was mailed to the taxpayer)."

    2. In the "Other Instructions" section of Form 3198-A, TE/GE Special Handling Notice, include the following: "IRC 6404(g) does apply, and notice was provided on ___ (insert the date Form 4549-E was mailed to the taxpayer). Interest should be suspended beginning ____ (insert the date the suspension period begins) through ____ (insert the date the suspension period ends)." Attach Form 3198-A to the outside of the case file. See IRM 4.71.4 Exhibit 12 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Form 3198-A.

    3. Prepare Form 3177, Notice of Action for Entry on Master File, in accordance with IRM 4.71.4 Exhibit 13 at IRM 4.71 - Employee Plans Examination Exhibits and attach it to Form 5599, TE/GE Examined Closing Record. The input of transaction code 971 with action code 064 and the "notice date" will suspend the interest as required by IRC 6404(g).

  12. Prepare Form 5772, EP Workpaper Summary, and Form 5773, Workpaper Continuation Sheet, (or equivalent) along with any supplemental workpapers. Save a copy of Forms 5772, 5773 (or equivalent), supplemental workpapers and all other relevant documents in RCCMS, following the RCCMS Naming Convention. The workpapers should

    1. Be limited to the discrepancy adjustment issue(s).

    2. Include a discussion on IRC 72(t) when the issue involves pension distributions.

    3. Include a brief discussion on the applicability of penalties and whether or not penalties are being assessed.

  13. Include all IDRS research discussed in IRM 4.71.4.4.1, IDRS Research, in the case file. Secure a current AMDISA print and attach it to Form 5599 before the case is closed.

  14. Prepare Form 5599 in accordance with IRM 4.71.4.12.1, Completion of Form 5599.

    Note:

    See IRM 4.71.4 Exhibit 5 at IRM 4.71 - Employee Plans Examination Exhibits

    for an example of a completed Form 5599.

  15. Save copies of all workpapers, forms and letters generated by the agent in the RCCMS Office Documents folder using the RCCMS Naming Convention.

  16. Place the following paper documents in a manila folder for the lead Form 1040 with a completed Form 10329, Transmittal Sheet-Related Cases, stapled on front:

    1. Form 895-EP (if applicable)

    2. Copy of all Forms 1040/1120 (or RTVUE/BRTVU prints)

    3. Form 872 (if applicable)

    4. Form 2848 (if applicable) attached to the back of the first page of the return (if there is a valid 2848 and it is not scanned into the RCCMS Office Documents folder)

    5. Form 4549-E

    6. Form 886-A or RAR

    7. Form 5599

    8. Form 5772

    9. Copy of Form 3244-A and a copy of the check if payment is received.

  17. If there are multiple years, place each related year in a separate folder with a completed Form 10329 stapled on front and the following documents inside the file:

    1. Copy of all Forms 1040/1120 (or RTVUE/BRTVU prints)

    2. Form 5599

    3. Form(s) 872 (if applicable)

    4. Form(s) 895-EP (if applicable).

  18. Complete closing tabs as required within the RCCMS activity.

  19. Update the case to status code 51 on RCCMS and AIMS before the case is closed from the group.

    Note:

    This is done by the designated person in the group.

  20. Close the case file to Examinations Special Support and Processing (ESSP).

4.71.4.5.2  (06-20-2014)
"No Change" Cases

  1. If the agent receives information during the 30 day period that verifies no adjustment is warranted, take the following actions:

    1. Retain a copy of the return (or applicable RTVUE or BRTVU print) in the case file.

    2. Include the original return (if secured) with the closed discrepancy adjustment case file.

    3. Prepare Form 5772 and Form 5773 (or equivalent), along with any supplemental workpapers and all other relevant documents, fully explaining why the case is being closed "no change."

    4. Prepare Letter 2656. See IRM 4.71.4 Exhibit 6 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Letter 2656.

      Note:

      The group should mail Letter 2656 to the taxpayer and POA before closing the case.

  2. Prepare Form 5599.

    1. For a "no change" case, use disposal code "02" on AIMS and "107" on RCCMS.

    2. Refer to the instructions under IRM 4.71.4.12.1, Completion of Form 5599, below for lines required to be completed.

      Note:

      See IRM 4.71.4 Exhibit 14 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 5599 for a "no change" case.

  3. Save copies of all workpapers, forms and letters generated by the agent, in the RCCMS Office Documents folder using the RCCMS Naming Convention.

  4. Place the following paper documents in individual folders for each year with a completed Form 10329 stapled on front:

    1. Form 895-EP (if applicable)

    2. Copy of Form 1040/1120 (or RTVUE/BRTVU print)

    3. Form 872 (if applicable)

    4. Form 2848 (if applicable) attached to the back of the first page of the return for the lead file (if there is a valid 2848 and its not scanned into the RCCMS Office Documents folder)

    5. Form 5599

    6. Form 5772 (if less than 180 days are remaining on the statute of limitations).

  5. Complete closing tabs as required within RCCMS.

  6. Update the status code to 51 on RCCMS and AIMS when the case is closed from the group.

    Note:

    This is done by the designated person in the group.

  7. Close the case file to ESSP.

4.71.4.6  (06-20-2014)
"Unagreed" Case Procedures

  1. "Unagreed" Case Procedures will be followed in two instances:

    1. The taxpayer disagrees and files a protest with Appeals (or petitions the Tax Court).

    2. The taxpayer fails to submit a proper response to the "30 Day Letter" .

  2. For all "unagreed" case files the agent must prepare a complete hard copy file and save all relevant documents in RCCMS.

4.71.4.6.1  (06-20-2014)
Disagreement by the Taxpayer

  1. If the taxpayer disagrees with the proposed adjustments, the agent must inform the taxpayer of their:

    1. Right to discuss the proposed adjustment with a supervisor.

    2. Appeal rights.

  2. A taxpayer that does not agree with the proposed adjustment should be encouraged to file a valid written protest for the case to go to Appeals. Pub. 5 summarizes the protest procedure.

  3. If the taxpayer files a protest, the agent must review the protest to determine whether:

    1. The protest is a "valid protest" , and

    2. The case requires further development.

      Note:

      See Pub. 5 for Form 1040/1120 protests for all the items needed for a "valid protest" .

  4. If the taxpayer does not submit a valid protest, close the case to EP Mandatory Review for the issuance of a 90 Day Letter.

  5. If the protest is valid, but does not change the government's position, the agent must modify the RAR to incorporate the taxpayer's position and the government's response to that position, and close the case to EP Mandatory Review with AIMS disposal code 07 (601 on RCCMS).

    Note:

    Mandatory Review will review the case before forwarding it to Appeals.

  6. If the protest is valid and changes the report, but does not eliminate the income tax adjustment, mail a revised report to the taxpayer, giving the taxpayer an additional 15 days.

    1. If agreement is secured from the taxpayer, close the case as an "agreed" case.

    2. If the taxpayer does not agree, close the case to EP Mandatory Review for forwarding to Appeals with AIMS disposal code 07 (601 on RCCMS).

  7. Save a copy of the final RAR in the RCCMS Office Documents folder using the RCCMS Naming Convention.

  8. If interest is being suspended in accordance with IRC 6404(g) as described in IRM 4.71.4.4.6, Penalties and Interest, take the following actions to notify ESSP that interest is to be suspended:

    1. List the IRC 6404(g) notice date in the "Other Information" section of the file copy of Form 4549-E. Suggested language is as follows: "IRC 6404(g) does apply, and notice was provided on ___ (insert the date Form 4549-E was mailed to the taxpayer)."

    2. Include the following statement in the "Other Instructions" section of Form 3198-A: "IRC 6404(g) does apply, and notice was provided on ___ (insert the date Form 4549-E was mailed to the taxpayer). Interest should be suspended beginning ____ (insert the date the suspension period begins) through ____ (insert the date the suspension period ends)."

    3. Prepare Form 3177 in accordance with IRM 4.71.4 Exhibit 13 at IRM 4.71 - Employee Plans Examination Exhibits and attach it to Form 5599. The input of transaction code 971 with action code 064 and the "notice date" will suspend the interest as required by IRC 6404(g).

  9. Prepare Form 5772 and Form 5773 (or equivalent) along with any supplemental workpapers and all other relevant documents. The workpapers should:

    1. Be limited to the discrepancy adjustment issue(s).

    2. Include a discussion on IRC 72(t) when the issue involves pension distributions.

    3. Include a brief discussion on the applicability of penalties and whether or not penalties are being assessed.

  10. Include all IDRS research discussed in IRM 4.71.4.4.1, IDRS Research, in the case file.

  11. Secure and attach a current AMDISA print to Form 5599 before the case is closed.

  12. Secure a current IMFOLT print (Form 1040) or BMFOLT print (Form 1120) immediately prior to closing the case to Mandatory Review to ensure that the Service Campus has not already made the assessment pertaining to the discrepancy adjustment.

  13. Prepare Form 5599 in accordance with IRM 4.71.4.12.1, Completion of Form 5599.

    Note:

    See IRM 4.71.4 Exhibit 15 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Form 5599 for an "unagreed" case.

  14. Complete the closing tabs as required within RCCMS.

  15. Save a copy of Forms 5772, 5773, supplemental workpapers, and all other forms and letters prepared by the agent within RCCMS, following the RCCMS Naming Convention.

  16. Update the status code to 20, "Review" on RCCMS and AIMS.

  17. Attach Form 3198-A to the outside of the case file, identifying the case as "Mandatory Review" , and notate: "Unagreed Discrepancy Adjustment" .

  18. If less than one year remains on the statute of limitations, see IRM 4.71.9, Statute Control Procedures, for special instructions.

    Note:

    The group manager must contact the Manager of Mandatory Review if a case is closed to Review with less than one year on the statute of limitations.

  19. Assemble the case file in accordance with IRM 4.71.4.12.3, Case File Assembly.

  20. Close the case to EP Mandatory Review on RCCMS and mail the paper case file to the following address:

    IRS
    EP Mandatory Review
    801 Broadway, Room 397
    MDP 13
    Nashville, TN 37203

4.71.4.6.2  (06-20-2014)
Failure of the Taxpayer to Properly Respond

  1. Close the caseto EP Mandatory Review Staff for issuance of a statutory notice of deficiency in these situations:

    1. It appears reasonable that the taxpayer or authorized representative received the "30 Day Letter" , and the taxpayer neither agrees (i.e., signs Form 4549-E) nor protests within the 30 day period;

    2. The "30 Day Letter" was not received by the taxpayer, but the IRS exercised due diligence in determining the taxpayer’s last known address;

    3. The taxpayer is temporarily away and is not expected to return within a reasonable period of time, or has not returned after a reasonable extension has been granted; or

    4. Follow-up action was taken without success.

  2. The Revenue Agent Report (RAR) must be modified to state that the taxpayer failed to respond. Include a copy of the RAR in the case file and saved in the Office Documents folder in RCCMS.

  3. Copy the case information on RGS onto a disk and include it in the case file.

  4. If interest is being suspended in accordance with IRC 6404(g) as described in IRM 4.71.4.4.6, Penalties and Interest, take the following actionsto notify the ESS unit that interest is to be suspended:

    1. List the IRC 6404(g) notice date in the "Other Information" section of the file copy of Form 4549-E. Suggested language is as follows: "IRC 6404(g) does apply, and notice was provided on ___ (insert the date Form 4549-E was mailed to the taxpayer)."

    2. Include the following statement in the "Other Instructions" section of Form 3198-A: "IRC 6404(g) does apply, and notice was provided on ___ (insert the date Form 4549-E was mailed to the taxpayer). Interest should be suspended beginning ____ (insert the date the suspension period begins) through ____ (insert the date the suspension period ends)."

  5. Prepare Form 5772 and Form 5773 (or equivalent) along with any supplemental workpapers and all other relevant documents. The workpapers should:

    1. Be limited to the discrepancy adjustment issue(s).

    2. Include a discussion on IRC 72(t) when the issue involves pension distributions.

    3. Include a brief discussion on the applicability of penalties and whether or not penalties are being assessed.

  6. Include all IDRS research discussed in IRM 4.71.4.4.1, IDRS Research, in the case file. Secure and attach a current AMDISA print to Form 5599 before closing the case.

  7. Prepare Form 5599 in accordance with IRM 4.71.4.12.1, Completion of Form 5599.

    Note:

    See IRM 4.71.4 Exhibit 15 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Form 5599 for an "unagreed" case.

  8. Close the case disposal code 10 (604 on RCCMS - "Unagreed - Without Protest" ).

  9. Save a copy of Forms 5772, 5773, supplemental workpapers, and all other forms and letters prepared by the agent within RCCMS, following the RCCMS Naming Convention.

  10. Update the status code on AIMS and RCCMS to 20, "Review."

  11. Complete the closing tabs as required within RCCMS.

  12. Attach Form 3198-A to the outside of the case file, identifying the case as "Mandatory Review" , and notate: "Unagreed Discrepancy Adjustment."

  13. If less than one year remains on the statute of limitations, see IRM 4.71.9, Statute Control Procedures, for special instructions.

    Note:

    The group manager must contact the Manager of Mandatory Review if a case is closed to Review with less than one year on the statute of limitations.

  14. Assemble the case file in accordance with IRM 4.71.4.12.3, Case File Assembly.

  15. Close the case to EP Mandatory Review on RCCMS and mail the paper case file to the following address:

    IRS
    EP Mandatory Review
    801 Broadway, Room 397
    MDP 13
    Nashville, TN 37203

4.71.4.7  (06-20-2014)
Simultaneous Closing with Related Cases

  1. If a discrepancy adjustment is set up because of an "unagreed" plan qualification issue, the agent must close it simultaneously with the related "unagreed" EP case (Form 5500).

    Note:

    Remember that if a Form 5500 "unagreed revocation" has corresponding discrepancy adjustments, EP Mandatory Review (not the group) will issue the "30 Day Letters" for both the discrepancy adjustment and the proposed revocation simultaneously.

  2. If the related case is an "unagreed" CEP case, the agent must close the discrepancy adjustment and the CEP case simultaneously. .

  3. It is recommended, but not required, that the agent close a discrepancy adjustment simultaneously with a related "agreed" EP case (Form 5500).

    Note:

    If the Form 5500 file is closed separately, ensure that copies of all materials from the related EP case file necessary to document the discrepancy adjustment are included in the discrepancy adjustment file.

4.71.4.8  (06-20-2014)
Partial Agreement Procedures

  1. If agreement can be reached on one or more issues, encourage the taxpayer to enter into a partial agreement by executing a Form 4549-E covering the "agreed" issues. A typical situation might be where the taxpayer agrees to the discrepancy adjustment; however, he does not agree to the penalty associated with the adjustment to his tax liability.

  2. Partial agreement procedures are not appropriate if the taxpayer agrees to the proposed adjustments in a specific tax period and does not agree with proposed adjustments in a prior or subsequent tax period.

  3. For partial agreements, the agent will complete two separate Form 4549-E reports.

    1. Prepare one report showing only the "agreed" issues and write "Partial Agreement" on top of the Form 4549-E .

    2. Prepare a second report that includes both the "agreed" and "unagreed" issues.

  4. Forward the above reports to the taxpayer with the "30 Day Letter" and all enclosures listed on the "30 Day Letter."

  5. If the taxpayer signs only the Form 4549-E"Partial Agreement" report but does not sign the report containing both "agreed" and "unagreed" issues, prepare an explanation of which items and amounts were agreed to by the taxpayer.

    1. Place this explanation in the file for Mandatory Review to mail out.

    2. Do not send it to the taxpayer.

    3. The case should be closed as an "unagreed" case as outlined above.

  6. Attach Form 3198-A with an entry stating that the discrepancy adjustment is "partially agreed" .

  7. Close the case to EP Mandatory Review as an "unagreed" case in accordance with IRM 4.71.4.6.1, Disagreement by the Taxpayer.

4.71.4.9  (06-20-2014)
Relief from Joint & Several Liability

  1. If a discrepancy adjustment involves a Form 1040 that was filed as a joint return, follow these procedures:

    1. Research IDRS to confirm the current address for each spouse and update the Master File if the address has changed. For detailed procedures on locating taxpayers and what constitutes proper notice, see IRM 25.15, Relief from Joint and Several Liability.

    2. Send a copy of the discrepancy adjustment report to each spouse, even if they live at the same address.

    3. If the taxpayer inquires about IRC 6015 relief (innocent spouse relief), include documentation on Form 5464 (CCR) that IRC 6015 relief was discussed. Note the taxpayer’s response, if any, regarding pursuit of this relief.

    4. If the taxpayer requests IRC 6015 relief, refer this matter to EP Classification for appropriate routing with Form 5666, TE/GE Referral Information Report.

    5. If the taxpayer submits Form 8857, Request for Innocent Spouse Relief, (or a statement that contains substantially the same information signed under penalty of perjury), and the case is closed, date stamp the receipt date on the request and send the IRC 6015 relief request to:
      Internal Revenue Service, CSPC
      Stop 840 F
      201 West Rivercenter Blvd.
      Covington, KY 41012.

  2. EP personnel should no longer consider a Form 2848 to be valid that includes both spouses (or former spouses) on the same Form 2848. Instead, separate Form 2848 must be secured for each spouse when the taxpayer(s) desire someone to represent them.

4.71.4.10  (06-20-2014)
Claims

  1. If a taxpayer files a formal claim with a Service Campus on Form 843, Claim For Refund and Request for Abatement, Form 1045, Application for Tentative Refund, Form 1139, Corporation Application for Tentative Refund, Form 1040X, Amended U.S. Individual Income Tax Return, or Form 1120X, Amended U.S. Corporation Income Tax Return, while the income tax return is open on AIMS in EP, the Service Campus will forward the claim to the EP agent for action.

  2. On receiving a formal or informal claim directly from the Service Campus, the EP agent should notify EP Classification of the receipt of the claim.

  3. If EP retains jurisdiction over the claim and the discrepancy adjustment is open, the disposition of the claim must be explained in the "Other Information" box of Form 4549-E making no reference to "examinations" .

    1. If the claim is fully or partially allowed, enter the claim description and amount on the appropriate adjustment line of Form 4549-E.

    2. If a formal claim is fully or partially disallowed, the report will also contain Form 2297, Waiver of Statutory Notification of Claim Disallowance.

  4. For additional information on claims see IRM 4.71.8, EP Claims.

4.71.4.11  (06-20-2014)
Installment Agreement Procedures

  1. If the taxpayer is unable to pay the full amount owed, the agent may offer an installment agreement. Form 9465, Installment Agreement Request, may be sent to the taxpayer with the "30 Day Letter" package. See IRM 4.71.4 Exhibit 10 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Form 9465.

  2. Streamlined Installment Agreement procedures should be used where the amount is $25,000 or less. If the statute of limitations is imminent, a Form 872 should be secured to enable sufficient time to process the case. See IRM 4.20.4 and IRM 5.14.5 for more information on installment agreements.

  3. If the taxpayer has filed for bankruptcy, appropriate steps must be taken to protect the government’s interests. Coordination with the appropriate EFU may be required. Form 9439, Collectibility Evaluation Form, may be required when collectibility becomes an issue. See IRM 4.27 for further guidance on bankruptcy procedures.

  4. The taxpayer will complete Form 433-D, Installment Agreement, to enter into an installment agreement.

4.71.4.12  (06-20-2014)
Closing Procedures

  1. All discrepancy adjustment cases will be closed using Form 5599. See IRM 4.71.4 Exhibit 5 ("agreed tax change" cases), Exhibit 14 ("no change" cases) and Exhibit 15 ("unagreed" cases) at IRM 4.71 - Employee Plans Examination Exhibits for examples of Form 5599.

  2. No closing letter is required to be prepared for either "agreed tax change" cases or "unagreed" cases.

  3. A closing letter (Letter 2656) is only required when contact has been made with the taxpayer, and the case is closed "no change" .

  4. IRC 6621(c) imposes additional interest on amounts due if tax is being assessed on a corporation in the amount of $100,000 or more in any given tax year.

    1. IRC 6621(c) applies to Forms 1120 discrepancy adjustments.

    2. it applies only to "C" corporations, not to individuals or trusts or "S" corporations.

    3. The additional 2% interest applies only when a 30-Day Letter has been issued and only if the amount due is not paid within 30 days of the issuance of the 30-Day Letter.

    4. To assure that the additional 2 % interest is assessed, the agent must enter the date the 30-Day Letter was issued in item 03 of Form 5599. The agent must also enter the amount of tax and penalties due for the year in item 04 of Form 5599.

  5. Process "agreed" cases in accordance with IRM 4.71.4.5, "Agreed" Case Procedures, above.

  6. Process "unagreed" cases in accordance with IRM 4.71.4.6, "Unagreed" Case Procedures, above.

  7. Save copies of all workpapers, forms and letters generated by the agent in the RCCMS Office Documents folder using the RCCMS Naming Convention.

  8. Complete the closing tabs as required within RCCMS.

  9. Update the case to the proper status code on RCCMS and AIMS (status 20 or 51) before the case is closed from the group. Form 5595 may be utilized for this purpose, or at the discretion of the group manager, the group may use its own internal form.

4.71.4.12.1  (06-20-2014)
Completion of Form 5599

  1. Form 5599 should be completed for all discrepancy adjustment cases worked.

  2. ESSP makes tax assessments, penalty assessments, and adjustments for prepayment credits related to discrepancy adjustments from the amounts that are listed by the agent in item 12 and item 15 of Form 5599. Therefore, the agent must be careful to input the correct amounts. See the guidance provided in the instructions for item 12 and item 15 in paragraph 4 of this section.

  3. If the case is partially "agreed" , indicate in Part B (upper left portion of form) that the file is a partial agreement. Place a check mark in Box identified PartiaI = F. If partial agreement is secured, close the file to EP Mandatory Review with the words "discrepancy adjustment — partial agreement" written in the remarks section of Form 3198-A.

  4. Complete Form 5599 as follows. You will also need to complete various closing entries within the RCCMS activity screens:

    ITEM EXPLANATION
    P7-18—TIN Insert the EIN or SSN for the Taxpayer.  
    P21 - 22— MFT Form 1040 = 30; Form 1120 = 02.  
    P24 -29 — Tax Period Insert the tax year being adjusted.  
    P31-34—Name Control Insert the first four letters of the last name for Form 1040 or the first four letters of the name for Form 1120.  
    C—Name Insert taxpayer's name (last name first for Form 1040).  
    02—Penalty Reason Code No entry unless penalties previously assessed are being abated. See IRM 4.5.2, Exhibit 4.5.2-2 for applicable codes.  
    08—Agreement Date Insert the date the signed Form 4549-E is received.
    12—Tax Liability Adjustment Insert Code "300" and the amount of the increase in tax as shown on line 14 of Form 4549-E, or
    Insert Code "301" and the amount of decrease in tax that resulted from the discrepancy adjustment.
    12—Penalties Insert Code "320" for civil fraud penalty and amount of penalty.
    Insert Code "160" for the amount of any delinquency penalty to be assessed on late filed returns.
    Note: Accuracy related penalties should be reflected on item 15.
    12—Interest Leave blank. Interest will be computed and input by ESSP.
    13—Disposal Code 02 = "No Change"  
      03 = "Agreed Tax Change"  
      07 = "Unagreed - Protest to Appeals"  
      10 = "Unagreed - Without Protest"  
    14— Statute Extended to Insert current Statute of Limitations date if the statute has been extended. If the statute has not been extended, leave this item blank.
    15— Credit and Tax Computation Adjustments Insert Code "680" for accuracy related penalties being assessed under IRC 6662.
    Insert Code "806" to reflect tax withheld (i.e., on a distribution) but not previously claimed by the taxpayer or credited to his/her account by the Service Campus. This is the amount from line 15 of Form 4549-E (i.e., additional withholding).
    Insert Code "765" if reducing an earned income credit.
    28— Examiner’s Time Time must be entered in whole hours and in tenths of hours.
    30— Technique Code Applicable codes:
    1 = Office Interview Examination
    2 = Office Correspondence Examination
    4 = Field Examination
    31— Agent’s Grade Enter applicable grade level.
    32— Case Grade Enter the grade of the case in the blocks from left to right as two digits:
    Grade 9 = 09
    Grade 11 = 11
    Grade 12 = 12
    Grade 13 = 13
    33— Examiner’s Name Last name, first initial.
    40— Special Project Code Use same project code as used for Form 5500.
    41a— No Change Issue Codes Enter "99999999" for Form 1040 with Disposal Code "02" . Otherwise, no entry is required.
    42— ARDI Code An entry is required only if the disposal code is "03." Leave blank if case is being closed "no change" or is "unagreed."
    Applicable Codes:
    1— Fully Paid
    2— Not Paid
    3— Partially Paid
    4— Installment Agreement with payment
    5— Installment Agreement without payment
    50— Employee Group Code Enter the group number of the agent working the case.
      Note: Check the box at the bottom of page one to indicate that there is an entry on page two.  
    701— Principal Issue Code Use Code "27A" or "27B" (as applicable) in most cases. See Document 6476. On "unagreed" cases leave line 701 blank.

4.71.4.12.2  (06-20-2014)
Closing Letters

  1. Use Letter 2656 as the closing letter in cases where the taxpayer’s response to the "30 Day Letter" results in the discrepancy adjustment issue being dropped. See IRM 4.71.4 Exhibit 6 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Letter 2656.

  2. The "30 Day Letter" is the final letter for "agreed" cases.

4.71.4.12.3  (06-20-2014)
Case File Assembly

  1. Assemble all "agreed" Forms 1040 or 1120 discrepancy adjustments in accordance with paragraph 6 of IRM 4.71.12.3, Assembly Guidelines for All "Agreed" Examinations.

  2. Assemble all "unagreed" Forms 1040 or 1120 discrepancy adjustments in accordance with IRM 4.71.12.4, Assembly Guidelines for All "Unagreed" Examinations.

  3. Prepare and assemble a paper case file when a Form 1040 or Form 1120 discrepancy adjustment is closed "unagreed" to Mandatory Review.

  4. Use a separate folder for each taxpayer’s income tax return established on AIMS and RCCMS.

  5. Label each folder with Taxpayer Name, EIN/SSN, Year and Return (Form 1040 or 1120).

  6. Use red folders to identify cases with less that 180 days remaining on the statute of limitations.


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