4.71.4  Discrepancy Adjustments

Manual Transmittal

April 09, 2012

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 October 15, 2010 published version of IRM 4.71.4.

(2) Completed Forms and Letters are posted as Exhibits in the Mandatory Review section of the Employee Plans web page at Employee Plans IRM Exhibits .

Effect on Other Documents

This supersedes IRM 4.71.4 dated October 15, 2010.

Audience

TE/GE Employee Plans

Effective Date

(04-09-2012)


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

4.71.4.1  (04-09-2012)
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 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, and

    2. 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 examination of an employee plan.

  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. Rev. Proc. 2005-32, IRB 2005-23 1206.

  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  (04-09-2012)
Referrals to Examination Functional Units

  1. The Discrepancy Adjustment Program does not entirely preclude EP discrepancy adjustments from being referred to the Examination Functional Units. If the adjustment does not fall within the guidelines of the discrepancy adjustment program, a referral should be made to the appropriate Examination Functional Unit.

  2. Referrals to the Examination Functional Units should be made 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. Procedures may be adopted locally by EP Area Managers and Area Directors in Exam Functional Units. 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 Examination Functional Units (e.g., 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 the Examination Functional Unit may be examined by an EP agent, however:

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

    Note:

    Note: The income tax return must be closed off the Examination Functional Unit’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 Examination Functional Unit’s AIMS from the time the case is closed by the Examination Functional Unit, 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. Any adjustment may be referred to an Examination Functional Unit at the discretion of the EP Group Manager if it is determined that the adjustment may be better handled outside of the TE/GE Division.

4.71.4.3  (04-09-2012)
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 that the correct amount of income has been reported on the subject 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  (04-09-2012)
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  (04-09-2012)
Processing Discrepancy Adjustments

  1. The EP agent is responsible for initiating the discrepancy adjustment process. 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. Procedures involved in successfully working a discrepancy adjustment follow.

4.71.4.4.1  (04-09-2012)
IDRS Research

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

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

    Note:

    If so, contact must be made 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:

    1. To determine the statute of limitations.

    2. To determine if the return has already been examined by the Service.

    3. To determine if the return was amended since it was initially filed.

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

    5. To determine if the 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. A copy of all IDRS research discussed in this section should be included in the case file.

4.71.4.4.2  (04-09-2012)
Establishing the Case on AIMS and RCCMS

  1. Group manager approval must be secured before a discrepancy adjustment is initiated and concurrence must be documented on Form 5464, Case Chronology Record (CCR).

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

    Note:

    Form 5597 may be utilized 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 utilized, the following line items should be completed as follows:

    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. 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  (04-09-2012)
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. Consents to extend the statute should be secured 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. Statute procedures in IRM 4.71.9 should be followed. This includes preparing 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.

  4. Agents may propose adjustments on returns with short statutes if the adjustments are significant. Group Manager approval should be obtained prior to issuing a "30 Day Letter" on a return with less than 12 months left on the statute. Form 872, Consent to Extend the Time to Assess Tax, should normally be enclosed with the "30 Day Letter" in such cases.

    Note:

    See IRM 4.71.4.4.5(5) 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 necessary before an agent can accept a Form 872 submitted by the taxpayer to extend the statute of limitations.

4.71.4.4.4  (04-09-2012)
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, Employee Plans Computer Systems Codes.

    2. The AIMS generated activity code should be verified within RCCMS, and the code used on WebETS should be in agreement, 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. No plan indicator is to be used on WebETS for a return for which a discrepancy adjustment is being made.

4.71.4.4.5  (04-09-2012)
Preparation of the Discrepancy Adjustment Package

  1. Form 4549-E is the report that will be utilized 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 two comments in all cases:

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

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

    3. A third comment should be included if IRC 6404(g) applies (See IRM 4.71.4.4.6).

    Note:

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

  2. Form 4549-E will be generated utilizing current RGS software.

  3. A Revenue Agent Report (RAR) must also be attached, which will include 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. Form 886-A can be utilized for this purpose.

  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 Employee Plans IRM Exhibits for an example of an RAR.

  5. Letter 3605-A ("30 Day Letter" ) will be utilized as the cover letter for the discrepancy adjustment package mailed to the taxpayer. See IRM 4.71.4 Exhibit 2 at Employee Plans IRM 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 (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. They should be closed 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 there is no response within 30 days, the case can be closed "Unagreed" to EP Mandatory Review. See IRM 4.71.4.6. below.

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

    1. For the purpose of obtaining the taxpayer’s last known address, an INOLES print should be secured. INOLES reflects the address last given to the Service through the most recent filing of a return by the taxpayer or other notification by the taxpayer.

    2. If knowledge is obtained through other sources, that the taxpayer’s address has changed subsequent to the address reflected on INOLES, then that subsequent address should be used.

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

    1. Separate packages should be mailed to each spouse, even if they live at the same address. Utilize the last known address of each spouse (or former spouse if no longer married).

      Note:

      When a separate mailing to the spouses is needed, each letter should be individually prepared and addressed. The primary social security number should be used on both letters.

    2. Separate Forms 2848 must be secured for each spouse when the taxpayer(s) desire someone to represent them.

4.71.4.4.6  (04-09-2012)
Penalties and Interest

  1. The agent must make a determination as to whether any penalties are appropriate.

    1. Any applicable penalties should be applied 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.

    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). Per IRC 6751(b)(2), penalties assessed under IRC 6662 are not exempted from this requirement. Therefore, 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. For this purpose, managerial approval should be documented on Form 5464, Case Chronology Record.

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

  2. Per IRC 6404(g), if the Service 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 Service 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 timely filed Forms 1040 filed for 2004 and earlier years, the suspension period begins 18 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 Notice 2007-93, IRB 2007-48 1072, and Example 1 below.

    2. For timely filed Forms 1040 filed for 2005, the suspension period begins 18 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, if the return was filed on or before May 25, 2006.

      Note:

      See Example 2 below.

    3. 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.

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

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

    6. 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).

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

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

    9. 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.

    10. 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.

    11. 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.

    12. 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" .

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

  3. The following examples help illustrate the suspension period:

    1. Example 1 : Assume Sam and Susan Smith timely file their 2004 Form 1040 on October 15, 2005 (they had valid extensions to file). Assume Sam is a highly compensated employee in an Employee Stock Ownership Plan (ESOP) that fails coverage under IRC 410(b) and as a result his entire vested benefit in the ESOP of $1,542,650 becomes taxable under IRC 402(b)(4). Assume Form 872 was timely secured extending the statute of limitations to April 15, 2011. Assume further that a "30 Day Letter" is issued on February 15, 2010. The Smith's owe interest on the deficiency from April 16, 2005 through April 15, 2007. Interest is suspended beginning April 16, 2007 through March 8, 2010. Interest will begin accruing again on March 9, 2010 through the date the deficiency is paid.

    2. Example 2 : Assume Jake Jones timely files his 2005 Form 1040 on April 17, 2006 (April 15th is a Saturday). Jake neglects to include a taxable pension distribution in the amount of $100,000 on his Form 1040. A "30 Day Letter" package is mailed to Jake on October 15, 2009, and Jake signs Form 4549-E and pays the deficiency on November 15, 2009. Jake owes interest on the deficiency from April 18, 2006 through October 17, 2007. Interest is suspended from October 18, 2007 through November 5, 2009. Interest again runs from November 6, 2009 through November 15, 2009. IRC 6404(g) would apply since the 18 month period ends on October 17, 2007.

    3. Example 3 : Assume the same facts as Example 2 except that Jake timely filed his 2005 Form 1040 on June 15, 2006. Jake owes interest from April 18, 2006 through November 15, 2009. Since Jake filed his Form 1040 after May 25, 2006, interest is not suspended until after 36 months.

    4. Example 4 : Assume Amanda Allen timely files her 2007 Form 1040 on April 15, 2008. 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, 2009 and Amanda signs Form 4549-E and pays the deficiency on November 15, 2009. Amanda owes interest on the deficiency from April 16, 2008 through November 15, 2009. 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.

  4. When the agent determines that penalties should be imposed on a Form 1040 or Form 1120 discrepancy adjustment, the following requirements must be observed:

    1. Supervisory approval is required prior to assessment for 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 penalty Code section and a computation of the penalty must be provided to the taxpayer.

    Note:

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

  5. 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.

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

4.71.4.4.7  (04-09-2012)
Taxpayer Responses to the "30 Day Letter" (Letter 3605-A)

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

  4. In general, Reg. section 601.105(d)1 does not provide for 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. Extensions should not be granted 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. The taxpayer should be notified in writing of the extension and the specific extended response date. Extensions are normally granted for no more than 30 days unless a specific reason supports additional time.

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

  8. If the "30 Day Letter" is returned as undeliverable to the address on file, then an attempt will be made to obtain the correct address.

    1. If the taxpayer’s correct address is determined, the "30 Day Letter" will be re-mailed to the new address. 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 below.

4.71.4.5  (04-09-2012)
"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 below for further instructions.

    2. Additional information is provided that results in a "No Change" . In this instance, information is provided by the taxpayer or through other sources verifying that no adjustment is warranted.

4.71.4.5.1  (04-09-2012)
"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 taxpayer contact has been made and the case chronology documents 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," the disposal code is 03 (RCCMS disposal code = 102).

    Note:

    If there is a related Form 5500 exam, it will be closed 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 case must be processed within 22 calendar days (16 business days) after the agreement is filed or the over-assessment is determined.

  5. If payment is received, checks must be processed 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. The check information (date of check, check number, amount, payer, IRS recipient name and date received) must be entered 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 Employee Plans IRM 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. The body of the Form 3210 should include 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, the breakdown and details should be noted and itemized on the Form 3210.

    5. After preparation of Form 3244-A and Form 3210, a group manager must review the Form 3210, compare it to the Form 3244-A and sign the Form 3210. 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. By the end of the next business day after receipt, the check along with the Form 3244-A and Form 3210, must be sent express mail (next day) to the Ogden Service Campus at the address listed in paragraphs (6) or (7) of this section.

    8. If the check cannot be mailed to Service Campus the same day it is received, it must be secured 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. If the acknowledgement copy of Form 3210 is not received back from the Service Campus within 10 days after mailing, the Service Campus must be contacted to follow-up receipt of the check. These actions must be documented 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. When addressing the Express Services Routing slip (Form 9814), the recipient name should be "Mail Supervisor" with the recipient phone number of (801) 620-3750. This is the case whether or not payment is remitted.

  9. No closing letter is prepared for discrepancy adjustments when there is an "Agreed Tax Change" .

  10. If interest is being suspended in accordance with IRC 6404(g) as described in IRM 4.71.4.4.6, the following actions should be taken to notify the ESS unit that interest is to be suspended:

    1. The IRC 6404(g) notice date should be listed 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)." The Form 3198-A is attached to the outside of the case file. See IRM 4.71.4 Exhibit 12 at Employee Plans IRM 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 Employee Plans IRM 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).

  11. 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.

    1. The workpapers will be limited to the discrepancy adjustment issue(s).

    2. The workpapers should include a discussion on IRC 72(t) when the issue involves pension distributions.

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

  12. All IDRS research discussed in IRM 4.71.4.4.1 should be included in the case file. A current AMDISA print should be secured and attached to Form 5599 before the case is closed.

  13. Prepare Form 5599 in accordance with IRM 4.71.4.12.1.

    Note:

    See IRM 4.71.4 Exhibit 5 at Employee Plans IRM Exhibits

    for an example of a completed Form 5599.

  14. Copies of all workpapers, forms and letters generated by the agent must be saved in the RCCMS Office Documents folder using the RCCMS Naming Convention.

  15. The following paper documents must be 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, Power of Attorney and Declaration of Representative, (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, and

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

  16. If there are multiple years, each related year must be 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), and

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

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

  18. The case should be updated 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.

  19. The case file should be closed to Examinations Special Support and Processing (ESSP).

4.71.4.5.2  (04-09-2012)
"No Change" Cases

  1. If information received during the 30 day period verifies that 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 Employee Plans IRM Exhibits for an example of Letter 2656.

      Note:

      Letter 2656 should be mailed by the group to the taxpayer and POA before the case is closed.

  2. Prepare Form 5599, TE/GE Examined Closing Record.

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

    2. Refer to the instructions under IRM 4.71.4.12.1 below for lines required to be completed.

      Note:

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

  3. Copies of all workpapers, forms and letters generated by the agent, must be saved in the RCCMS Office Documents folder using the RCCMS Naming Convention.

  4. The following paper documents must be 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, and

    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 it closed from the group.

    Note:

    This is done by the designated person in the group.

  7. The case file should be closed to ESSP.

4.71.4.6  (04-09-2012)
"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. All "Unagreed" case files require a complete hard copy file and all relevant documents must be saved in RCCMS.

4.71.4.6.1  (04-09-2012)
Disagreement by the Taxpayer

  1. If the taxpayer disagrees with the proposed adjustments, the agent must inform him/her of:

    1. The right to discuss the proposed adjustment with a supervisor.

    2. Their appeal rights.

  2. A taxpayer that does not agree with the proposed adjustment should be encouraged to file a 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 adequate (See Pub 5), and

    2. The case requires further development.

  4. If the protest does not change the government's position, the RAR must be modified to incorporate the taxpayer's position and the government's response to that position, and the case will be closed to EP Mandatory Review (where the case will be reviewed before forwarding to Appeals) with AIMS disposal code 07 (601 on RCCMS).

  5. If the protest changes the report but does not eliminate the income tax adjustment, a revised report should be mailed to the taxpayer, giving the taxpayer an additional 15 days.

    1. If agreement is secured from the taxpayer, the case will be closed as an "Agreed" case.

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

  6. A copy of the final RAR should be saved in the RCCMS Office Documents folder using the RCCMS Naming Convention.

  7. If interest is being suspended in accordance with IRC 6404(g) as described in IRM 4.71.4.4.6, the following actions should be taken to notify ESSP that interest is to be suspended:

    1. The IRC 6404(g) notice date should be listed 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, 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)."

    3. Prepare Form 3177 in accordance with IRM 4.71.4 Exhibit 13 at Employee Plans IRM 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).

  8. Prepare Form 5772 and Form 5773 (or equivalent) along with any supplemental workpapers and all other relevant documents.

    1. The workpapers will be limited to the discrepancy adjustment issue(s).

    2. The workpapers should include a discussion on IRC 72(t) when the issue involves pension distributions.

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

  9. All IDRS research discussed in IRM 4.71.4.4.1 should be included in the case file.

  10. A current AMDISA print should be secured and attached to Form 5599 before the case is closed.

  11. A current IMFOLT print (Form 1040) or BMFOLT print (Form 1120) should be secured 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.

  12. Prepare Form 5599 in accordance with IRM 4.71.4.12.1.

    Note:

    See IRM 4.71.4 Exhibit 15 at Employee Plans IRM Exhibits for an example of Form 5599 for an "Unagreed" case.

  13. Complete the closing tabs as required within RCCMS.

  14. 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.

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

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

  17. If less than one year remains on the statute of limitations, see IRM 4.71.9, Statute Controls, 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.

  18. Assemble the case file in accordance with IRM 4.71.4.12.3.

  19. 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  (04-09-2012)
Failure of the Taxpayer to Properly Respond

  1. The case should also be closed to EP Mandatory Review Staff for issuance of a statutory notice of deficiency in the following instances:

    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 Service 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. A copy of the RAR must be included in the case file and saved in the Office Documents folder in RCCMS.

  3. The case information on RGS must be copied onto a disk and included 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, the following actions should be taken to notify the ESS unit that interest is to be suspended:

    1. The IRC 6404(g) notice date should be listed 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, 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)."

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

    1. The workpapers will be limited to the discrepancy adjustment issue(s).

    2. The workpapers should include a discussion on IRC 72(t) when the issue involves pension distributions.

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

  6. All IDRS research discussed in IRM 4.71.4.4.1 should be included in the case file. A current AMDISA print should be secured and attached to Form 5599 before the case is closed.

  7. Prepare Form 5599 in accordance with IRM 4.71.4.12.1.

    Note:

    See IRM 4.71.4 Exhibit 15 at Employee Plans IRM Exhibits for an example of Form 5599 for an "Unagreed" case.

  8. The case should be closed 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 Controls, 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.

  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  (04-09-2012)
Simultaneous Closing with Related Cases

  1. Simultaneous closing with a related "Unagreed" EP case (Form 5500) is required if discrepancy adjustments are set up because of an "Unagreed" EP issue.

    Note:

    Remember that if a Form 5500 "Unagreed revocation" has corresponding discrepancy adjustments, the "30 Day Letters" for the discrepancy adjustments will be issued by EP Mandatory Review (not the Group) simultaneously with the proposed revocation.

  2. Simultaneous closing with a related "Unagreed" EP case (Form 5500) is required if the related case is a CEP case.

  3. Simultaneous closing with a related "Agreed" EP case (Form 5500) is recommended, but not required.

    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  (04-09-2012)
Partial Agreement Procedures

  1. If agreement can be reached on one or more issues, the taxpayer should be encouraged 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. Write "Partial Agreement" on top of the Form 4549-E .

    2. Prepare a second report that includes both the "Agreed" and "Unagreed" issues.

  4. The agent will forward the above reports to the taxpayer, as well as the "30 Day Letter" . All enclosures listed on the "30 Day Letter" should be included.

  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, an explanation should be prepared of which items and amounts were agreed to by the taxpayer. This explanation should accompany the file to Mandatory Review Staff and should not to be sent to the taxpayer. The case should be closed as an "Unagreed" case as outlined above.

  6. Attach Form 3198-A with an entry 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.

4.71.4.9  (04-09-2012)
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 IRC 6015 relief (innocent spouse relief) is inquired of by a taxpayer, 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 IRC 6015 relief is requested, refer this matter to EP Classification for appropriate routing along with Form 5666, TE/GE Referral Information Report.

    5. If Form 8857, Request for Innocent Spouse Relief, (or a statement that contains substantially the same information signed under penalty of perjury) is submitted, and the case is closed, date stamp the receipt date on the request and send the IRC 6015 relief request to:
      Internal Revenue Service, CSC
      Stop 829, Unit 11
      201 West Rivercenter Boulevard
      Covington, KY 41019.

  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  (04-09-2012)
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  (04-09-2012)
Installment Agreement Procedures

  1. If the taxpayer is unable to pay the full amount owed, an installment agreement can be offered. 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 Employee Plans IRM 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 Examination Functional Unit 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 to enter into an installment agreement.

4.71.4.12  (04-09-2012)
Closing Procedures

  1. All discrepancy adjustment cases will be closed utilizing the Form 5599. See IRM 4.71.4 Exhibits 5 ("Agreed Tax Change" cases), 14 ("No Change" cases) and 15 ("Unagreed" cases) at Employee Plans IRM 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 a determination has been made to close the case "No Change" .

  4. Process "Agreed" cases in accordance with IRM 4.71.4.5 above.

  5. Process "Unagreed" cases in accordance with IRM 4.71.4.6 above.

  6. Copies of all workpapers, forms and letters generated by the agent must be saved in the RCCMS Office Documents folder using the RCCMS Naming Convention.

  7. Complete the closing tabs as required within RCCMS.

  8. The case should be updated 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  (04-09-2012)
Completion of Form 5599

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

  2. Tax assessments, penalty assessments, and adjustments for prepayment credits related to discrepancy adjustments are made by ESSP 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, the file should be closed 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 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— Increase in Adjustment Dollars 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).
    15— Decrease in Adjustment Dollars 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— Examiner’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— 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 "27" in most cases. See Document 6476. On "Unagreed" cases leave line 701 blank.

4.71.4.12.2  (04-09-2012)
Closing Letters

  1. Letter 2656 serves 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 Employee Plans IRM Exhibits for an example of Letter 2656.

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

4.71.4.12.3  (04-09-2012)
Case File Assembly

  1. All "Agreed" Forms 1040 or 1120 discrepancy adjustments must be assembled in accordance with paragraph 6 of IRM 4.71.12.3.

  2. All "Unagreed" Forms 1040 or 1120 discrepancy adjustments must be assembled in accordance with IRM 4.71.12.4.

  3. When a Form 1040 or Form 1120 discrepancy adjustment is closed "Unagreed" to Mandatory Review, a complete paper case file must be prepared and assembled.

  4. A separate folder must be used 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. Red folders should be used to identify cases with less that 180 days remaining on the statute of limitations.


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