4.71.9  Statute Control Procedures

Manual Transmittal

July 29, 2014

Purpose

(1) This transmits a complete reprint with changes for IRM 4.71.9, Employee Plans Examination of Returns, Statute Control Procedures.

Material Changes

(1) This revision makes minor clarifying corrections to the May 9, 2013, published version of IRM 4.71.9.

(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 4.71.9 dated May 9, 2013.

Audience

TE/GE Employee Plans

Effective Date

(07-29-2014)

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

4.71.9.1  (07-29-2014)
Overview of Statute Control Procedures

  1. The Internal Revenue Code (IRC) requires the Internal Revenue Service (IRS) to assess taxes within specific time limits. These limits are known as the Statutes of Limitations. When they expire, the IRS can no longer assess additional tax.

  2. Statute controls ensure:

    1. Statute expiration dates on Form 1041, U.S. Income Tax Return for Estates and Trusts, Form 5330, Return of Excise Taxes Related to Employee Benefit Plans, Form 990-T, Exempt Organization Business Income Tax Return, Form 1040, U.S. Individual Income Tax Return, Form 1120, U.S. Corporation Income Tax Return, and Form 941, Employer's Quarterly Federal Tax Return, are properly determined and the records are annotated to reflect the correct assessment statute expiration date (ASED).

    2. Cases are closely monitored to prevent unintended expiration of the assessment statute of limitations.

  3. It is critical that Employee Plans (EP) personnel take seriously their responsibility to protect the Government's interest in tax matters.

  4. Failure to protect statutes not only impacts the amount of tax that could statutorily be assessed and collected, but it could also affect the careers of employees in EP.

    1. Per IRS Document 11490, Performance Plan for Internal Revenue Agent GS-0512, in order to receive an "Exceeds" in item 5B of the Critical Job Elements, an employee must "consistently follow the procedures to protect statutes of limitations."

    2. Per IRS Document 11500, Guide to Penalty Determinations, negligence or carelessness in carrying out duties or failure to carry out duties including failure to protect a statute may result in a written reprimand, suspension, or termination of employment, depending on the frequency and severity of the offense (see page 18 of Document 11500).

  5. All necessary actions to protect the government’s interest must be taken in a case when expiration of the statutory period for assessment of any additional or potential tax is imminent. This responsibility extends not only to the liability of the entity under exam, but also to the liabilities of the related taxpayers, whether or not these returns are currently under exam. In these instances the agent is responsible for protecting the statute of limitations for:

    1. Forms 1041 and 990-T related to the trust for the plan under examination,

    2. Forms 5330 related to excise tax involving the plan under examination,

    3. Forms 1040 of highly compensated employees who are participants in the plan when there are taxable events involving the plan under examination, unless these returns are currently under examination by W&I, SB/SE or LB&I,

    4. Forms 1120 filed by the plan sponsor when there are income tax adjustments related to the plan under examination, unless these returns are currently under examination by SB/SE or LB&I, and

    5. Related Forms 941, Forms 1120, or Forms 1040 affected by the Non-Return Unit audit.

  6. The term "case file" as used in this IRM refers to the Reporting Compliance Case Management System (RCCMS) and/or a paper file as appropriate. See IRM 4.71.12, Case File Assembly Guidelines, for documents required to be included in a paper file.

  7. The following guidance in this IRM is provided to establish uniform procedures for statute controls on EP examination cases.

  8. Additional procedures may be implemented per Area Manager discretion.

4.71.9.2  (07-29-2014)
Organizational Goals

  1. To the extent possible, unagreed cases should have at least one (1) year left on the statute when the case is submitted to EP Mandatory Review, to provide adequate time for administrative case processing.

  2. To the extent possible, agreed cases (including no-change cases) should have at least 180 days remaining on the statute when the case is submitted to the closing or review functions, providing adequate time for administrative case processing.

  3. Form 872, Consent to Extend the Time to Assess Tax, and Form 872-H, Consent to Extend the Time to Assess Tax on a Trust, should be timely and correctly prepared when extending the statute of limitations for examined returns under EP jurisdiction.

  4. Red folders must be used to identify cases with less than 180 calendar days remaining on the statute and the minimum required documents as outlined under IRM 4.71.12.3(2) or 4.71.12.4 are also included in the case file.

    Note:

    It is also acceptable to use Form 10364-A, Statute Expiration Case Notice, if ordered from the National Distribution Center under catalog number 24613P (it will be delivered as a pre-printed red folder).

    Note:

    A Form 5500, Annual Return/Report of Employee Benefit Plan, exam for which the statute of limitations has been properly updated to alpha code "PP" is not considered a short statute case and should not be placed in a red folder.

4.71.9.3  (07-29-2014)
Group Manager Responsibilities and Procedures

  1. Group managers are responsible for maintaining continuous statute controls on the Audit Information Management System (AIMS) and RCCMS for assigned and unassigned returns. All returns, in which issues are being examined, will be controlled on AIMS and RCCMS.

  2. The group manager (or designee) will notify the agent in writing of those assigned returns where the statute of limitations will expire within 270 days.

    Note:

    This notification should be documented by furnishing the agent with a partially completed Form 895-EP, Notice of Statute Expiration, by sending an email to the agent, or by providing the agent with some other type of written and dated notification, and documenting the Case Chronology Record (CCR).

  3. The group manager should ensure that a copy of the Form 895-EP (with appropriate notations) is attached to the outside of the case file if the case is unagreed (in accordance with IRM 4.71.12.4) or included in the case file if the case is agreed (when necessary as required by IRM 4.71.12.3, Assembly Guidelines for All Agreed Exams). See IRM 4.71.9 Exhibit 1 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 895-EP.

  4. When a decision is made not to extend the statutory period on a Form 5500/1041, the group manager will ensure that:

    1. The decision was made prior to the expiration of the statute of limitations.

    2. Form 895-EP is appropriately noted and initialed by the agent and the group manager.

    3. A memorandum of explanation (signed by the manager) is attached to the Form 895-EP, detailing the reasons for not extending the statutory period. See IRM 4.71.9 Exhibit 2 at IRM 4.71 - Employee Plans Examination Exhibits for an example of the memo that should be used when updating a statute to alpha code "PP" .

    4. Place a copy of the memo in the case file and send a copy of the memo to the Area Manager. This will serve to support the decision not to extend the statutory period.

    5. At least 60 days prior to the statute expiration, but no more than 270 days, both AIMS and RCCMS have been updated to reflect documentation of this decision by use of alpha code "PP" - Non-taxable EP Return.

      Note:

      The "PP" code should be used when it is determined with certainty that the non-taxable return will not be converted to a taxable return. If it is later determined that the use of this alpha code was inappropriate, a Form 3999 Statute Expiration Report, may be required as outlined in IRM 4.71.9.12.

    6. A copy of the AIMS print is included in the file to verify the date of the update action to "PP" the statute.

    7. If the case has been properly updated to alpha code "PP" , the case file should not be placed in a red folder.

  5. When a decision is made to open an examination of Form 5500 for a prior year for which the statute of limitations has expired:

    1. The statute of limitations should be updated to alpha code "PP" immediately.

    2. A memorandum of explanation (signed by the group manager) detailing the reasons for opening an examination of a prior year's return (or non-return unit) must be included in the case file. See IRM 4.71.9 Exhibit 2 at IRM 4.71 - Employee Plans Examination Exhibits for an example of the memo.

    3. A copy of the AIMS print should be included in the case file to confirm the date of the statute update action to alpha code "PP."

      Note:

      Per Yarish Consulting, Inc. v. Commissioner, T.C. Memo. 2010-174, the U. S. Tax Court ruled that the expiration of a Form 5500/1041 statute does not prohibit the Service from pursuing a qualification issue in the year for which the Form 1041 statute is barred. When a plan fails to qualify under IRC 401(a) for a given year, the plan continues to be non-qualified until the plan becomes re-qualified through a closing agreement.

  6. The group manager will attempt to ensure that cases closed from the group have the following periods of time remaining on the statutes of limitations:

    Types of Cases Days Remaining on Statute
    Agreed at least 180 days
    Unagreed at least one year
    All cases in which revocation or non-qualification is proposed (whether agreed or unagreed) at least one year
  7. The group manager must take the following actions for cases closed with less than 180 days remaining on the statute of limitations:

    1. If a statute will expire within 120 to 179 days, a phone call and a follow-up e-mail notification must be made to the Manager, EP Mandatory Review or Manager, Examinations Special Support and Processing (ESSP) (as applicable depending on the destination of the case) prior to transferring the case on RCCMS or AIMS.

    2. If a statute will expire within 61-119 days, in addition to notifying the receiving manager as required in paragraph "a" , the Area Manager, and the Area Manager, EP Examinations Programs and Review must also be notified.

    3. If a statute will expire with 60 days or less, in addition to notifying the receiving group manager, the Area Manager, and the Area Manager, EP Examinations Programs and Review as required in paragraphs "a" and "b" , the Director, EP Examinations must also be notified. The group manager must indicate whether or not a tax assessment is to be made. Area Managers and group managers will be responsible for monitoring the case until final AIMS closure to ensure assessments are timely made.

    4. A memo will accompany the case file providing an explanation by the group manager of the reasons the case was submitted with less than 180 days. A copy of this memo will be forwarded to the Area Manager.

    5. Mail the case files via overnight mail (UPS).

    6. Follow-up with the receiving manager to ensure the case was received timely.

  8. Red Folders - Group managers will ensure that all cases with less than 180 days remaining on the statutory period are placed in a red folder and the minimum required documents as outlined under IRM 4.71.12.3(2) or 4.71.12.4 are also included in the case file.

    Note:

    It is also acceptable to use Form 10364-A if ordered from the National Distribution Center under catalog number 24613P (it will be delivered as a pre-printed red folder).

    Note:

    A Form 5500 exam for which the statute of limitations has been properly updated to alpha code "PP" is not considered a short statute case and should not be placed in a red folder.

  9. For any case transferred between Areas or field locations with less than 18 months remaining on the statutory period, the group manager should:

    1. Discuss the case with his/her Area Manager and receive concurrence. Upon receiving concurrence, that Area Manager should contact the prospective "receiving" Area Manager and receive concurrence before a transfer can be made.

    2. Mail the case via overnight mail to the receiving group that will perform the examination.

    3. Follow-up to ensure the case is received timely.

    4. Follow the case transfer procedures found in IRM 4.71.1.23.1.

  10. When transferring cases between Areas or groups, the manager should ensure that both copies of Form 895-EP (if applicable) accompany the case file.

  11. When a statute of limitations is being extended, the group manager should ensure that Form 872 (or Form 872-H with Form 56 Notice Concerning Fiduciary Relationship for extensions related to Forms 5500/1041) is properly completed and executed.

  12. When the statute of limitations is extended or updated to an alpha code, RCCMS and AIMS must be updated to reflect the current statute date.

  13. Form 10949-EP, Statute Extension and Control Checksheet, has been developed to assist group managers and agents in complying with statute procedures. See IRM 4.71.9 Exhibit 3 at IRM 4.71 - Employee Plans Examination Exhibits.

  14. Additional procedures that may be implemented per Area Manager discretion should also be followed.

4.71.9.4  (07-29-2014)
Agent Responsibilities and Procedures

  1. Agents should always be aware that the person in possession of the return is ultimately responsible for the protection of the statute of limitations.

  2. The agent should attempt to ensure that cases closed from the group have the following periods of time remaining on the statutes of limitations:

    Types of Cases Days Remaining on Statute
    Agreed at least 180 days
    Unagreed at least one year
    All cases in which revocation or non-qualification is proposed (whether agreed or unagreed) at least one year
  3. Regarding Form 895-EP, the agent should ensure that:

    1. Form 895-EP is prepared and returned to the group manager (or designee) no later than 10 calendar days after being notified by the group manager of the need to complete Form 895-EP.

      Note:

      The group manager (or designee) is required to notify the agent in writing of those assigned returns where the statute of limitations will expire within 270 days. See IRM 4.71.9.3(2).

    2. A copy of the Form 895-EP (with appropriate notations) is included with the case file.

      Note:

      For an unagreed case, Form 895-EP should be attached to the outside of the case file. For an agreed case, it should be included inside the case file (if less than 180 days are left on the statute). Always save the Form 895-EP in the RCCMS Office Documents folder using the RCCMS Naming Convention.

    3. Form 895-EP is updated on line 5 whenever the statute of limitations is extended with Form 872 or Form 872-H.

    4. Form 895-EP is updated whenever the statute of limitations is properly updated to alpha code "PP" in accordance with IRM 4.71.9.3, paragraph (4).

    5. See IRM 4.71.9 Exhibit 1 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Form 895-EP.

  4. The agent is responsible for not only protecting the statute of limitations for the year under examination, but also for subsequent years if there is a potential tax effect.

  5. Without prior managerial approval, an agent may not begin an examination or requisition any return for audit if fewer than twelve (12) months remain on the statute.

    1. Agents must obtain managerial approval before opening an examination of a return with fewer than 12 months remaining on the statute.

    2. Factors to consider before opening a year with a short statute should include the amount of potential tax liability and the impact on plan participants.

    3. The approval and justification, or disapproval, should be documented in the Case Chronology Record (CCR), Form 5464.

    4. If the decision is made to examine a return with 270 days or less remaining of the statute of limitations, a request for AIMS/RCCMS establishment and a Form 895-EP should be submitted to the manager at the same time.

  6. Use Form 872-H when extending a statute of limitations with respect to a Form 1041 or a Form 990-T related to Form 5500.

  7. Use Form 872 when extending a statute of limitations for a Form 5330, Form 1040, or Form 1120.

  8. Use Form SS-10 when extending the statute of limitations for a Form 941 related to a Non-Return Unit (NRU) exam. See IRM 4.71.9.7, Monitoring the Statute Date on a Non-Return Unit (NRU) Case.

  9. IRC 6501(c)(4)(B), requires the IRS to notify taxpayers of their right to refuse to extend the limitation period, request the extension be limited to particular issues and request the limitation period be limited to a specific date. The agent must therefore:

    1. Inform the taxpayer of his or her rights on each occasion when the taxpayer is requested to extend the statute of limitations.

    2. Notify the taxpayer by mailing Letter 907-A, Request to Extend the Statute Letter and Publication 1035, Extending the Tax Assessment Period (latest revision) with Forms 872 or 872-H.

      Note:

      The current revisions of Forms 872 and 872-H contain notification of taxpayer rights in the body of the form.

  10. Agents should take the most conservative approach and protect the three-year statute of limitations, if possible, even though a six-year statute could be applicable.

    1. This protects the interest of the government in the event it is subsequently determined that the six-year statute is not applicable. As such, the agent should secure a consent to extend the statute prior to the expiration of the three-year statute.

    2. If an agent and his/her manager determine that the six-year statute can be pursued, be aware that the burden of proof shifts to the government to support such six-year statute.

    3. Area Counsel's written advice regarding the applicability of the six-year statute must be obtained and maintained in the case file.

  11. The agent should ensure that when a statute extension is secured on a trust with a fiscal year end, the conversion to a calendar year taxable period is made when completing Form 872-H. If the qualified status of the plan is revoked, the trust becomes taxable and Form 1041 becomes due each calendar year.

  12. When an agent is proposing to disqualify a qualified plan, which would result in the conversion of a Form 5500 series return to a taxable return, the agent is responsible for controlling and protecting the statute until such time as:

    1. A Form 1041 is secured and the case is timely forwarded for closure within TE/GE, or

    2. The matter is referred to the appropriate Exam Functional Unit (e.g., SB/SE) by the use of Form 5666, TE/GE Referral Information Report.

  13. For any examination involving revocation or non-qualification, the agent is responsible for preparing and forwarding, in a timely manner, necessary referrals to the appropriate Exam Functional Unit (e.g., SB/SE) responsible for the Form 1041 trust return. The agent should consider a preliminary referral based on the issues included in the proposed revocation. Include with the referral any necessary supporting documentation that will assist in calculating the correct amount of tax to be reported on Form 1041. See IRM 4.71.6.7, Making Referrals to Exam Functional Units, for Form 5666 referral procedures.

    1. When a timely referral is made to an Exam Functional Unit for tax due on Form 1041, the agent may either secure a statute extension on Form 872-H to extend a short statute, or with group manager approval, the statute of limitations on the corresponding Form 5500 return may be updated to alpha code "PP" . See IRM 4.71.9.9(13) for additional guidance regarding the use of alpha code "PP" .

    2. When the statute is updated to alpha code "PP" (e.g., 12/PP/2014), a memorandum of explanation detailing the use of alpha code "PP" should be prepared and signed by the manager and attached to Form 895-EP.

      Note:

      For an unagreed case, Form 895-EP should be attached to the outside of the case file. For an agreed case, it should be included inside the case file (if less than 180 days are left on the statute). Always save the Form 895-EP in the RCCMS Office Documents folder using the RCCMS Naming Convention.

    3. In addition, a copy of the memo should be forwarded to the Area Manager.

    4. See IRM 4.71.9 Exhibit 2 at IRM 4.71 - Employee Plans Examination Exhibits for an example of the memo.

  14. There are special rules for project code 6451, 404 Deduction Only (CIP Support), examinations:

    1. The statute of limitations should be updated to alpha code "PP" immediately upon assignment.

    2. When the scope of a project code 6451 examination is expanded to include an IRC 401(a) issue and the statute of limitations is still open for that year, the general statute of limitation procedures contained in this IRM apply and the statute of limitations for Form 5500/1041 must be protected.

    3. When the scope of a project code 6451 examination is expanded to include an IRC 401(a) issue and the statute of limitations is closed for that year, the statute of limitations on RCCMS and AIMS should continue to reflect alpha code "PP" for that year. If Form 5500 exams are opened in later years for which the statute is still open, the general statute of limitation procedures contained in this IRM apply and the statute of limitations for Form 5500/1041 must be protected.

    4. It is not necessary to prepare Form 895-EP for a project code 6451 examination when the statute of limitations is updated to alpha code "PP" and the scope of the examination is not expanded to include IRC 401(a) issues.

    5. A memorandum of explanation (signed by the group manager) detailing the reason for the exam and the update of the statute to alpha code "PP" must be included in the case file. See IRM 4.71.9 Exhibit 2 at IRM 4.71 - Employee Plans Examination Exhibits for an example of the memo.

  15. When the statute of limitations is extended or updated to an alpha code, RCCMS and AIMS must be updated to reflect the current statute date.

  16. To assist group managers and agents in complying with statute procedures, Form 10949-EP, "Statute Extension and Control Checksheet" , has been developed for use. See IRM 4.71.9 Exhibit 3 at IRM 4.71 - Employee Plans Examination Exhibits.

4.71.9.5  (07-29-2014)
Determining the Statute of Limitations Expiration Date

  1. To protect the government's interest, the agent must be able to determine the statute of limitations expiration date for the assessment of tax for returns within the jurisdiction of EP. Returns under the jurisdiction of EP include:

    1. Form 5500 series returns,

      Note:

      As discussed in IRM 4.71.9.5.1 below, consents related to Forms 5500 are actually secured for Forms 1041 for the related trust.

    2. Form 5330 (See IRM 4.71.5, Form 5330 Examinations),

    3. Form 990-T for unrelated business income related to plan assets of an examined Form 5500 (See IRM 4.71.10, Form 990-T Examinations), and

    4. Form 1040/1120 discrepancy adjustments (See IRM 4.71.4, Discrepancy Adjustments).

  2. The normal statute of limitations for all returns under EP jurisdiction (except for Forms 5330 for excise tax under IRC 4975) expires three years from the due date of the return or the date filed, whichever is later. A return is deemed filed on the due date of the return if filed on or before its due date. See IRC 6501.

  3. The normal statute of limitations for Forms 5330 for excise tax under IRC 4975 is initially based on the filing of the related Form 5500. The statute of limitations generally expires three years from the due date of the related Form 5500 return or the date the related Form 5500 was filed, whichever is later. See IRM 4.71.9.5.2, Statute of Limitations for Form 5330, for a more detailed discussion.

  4. The statutory period is six years from the date the return is filed or deemed filed, whichever is later where:

    1. In the case of Form 1040, Form 1120, or Form 990-T, there has been a substantial omission of gross income on the return which is in excess of 25% of the amount of gross income stated on the return. See IRC 6501(e)(1).

    2. In the case of Forms 5330, there has been an omission of more than 25% of the excise tax due, unless disclosure of the item giving rise to the tax was made in a manner that adequately apprises the Secretary of the existence and nature of the item. See IRC 6501(e)(3) and Treas. Reg. section 301.6501(e)-1(c).

  5. The three and six year rules do not apply when false or fraudulent returns are filed with the intent to evade tax. In these instances, the tax may be assessed or collected at any time.

    Note:

    Contact the EP Fraud Coordinator if you have potential fraud.

  6. Agents should take the most conservative approach and protect the three-year statute, if possible, even though a six year statute appears applicable, or when it appears the return is false or fraudulent.

  7. Written approval from Area Counsel is required whenever a statute of limitations beyond three years is being pursued.

4.71.9.5.1  (07-29-2014)
Statute of Limitations for Forms 5500/1041

  1. Effective for the 2005 plan year for Form 5500-EZ filers and effective for the 2006 plan year for Form 5500 filers, the normal statute of limitations date expires three years from the later of the due date of the Form 5500 series return or the date the Form 5500 series return is filed.

  2. If a Form 5500 is not filed, but is required to be filed, and the agent prepares a substitute for return that is established on AIMS and RCCMS in accordance with paragraph (4) of IRM 4.71.1.21, the statute of limitations on AIMS and RCCMS should be updated to alpha code EE in accordance with paragraph (12) of IRM 4.71.9.9, Use of Alpha Codes.

  3. The statute of limitations that must be protected is that of the Form 1041, U.S. Income Tax Return for Estates and Trusts for the trust that relates to the plan.

    Note:

    If the plan is disqualified, the trust also becomes non-qualified, and the trust must file Forms 1041 for each calendar year the trust is not a qualified trust.

  4. The statute of limitations on the trust year runs with the filing of the Form 5500 for the plan year in which the trust year ends.

    Note:

    See IRM 4.71.9.6.1, Securing Consents for Forms 5500/1041, for a more detailed explanation.

  5. A Statute Expiration Chart has been prepared to assist in determining the statute of limitations for Forms 1041. This chart should be completed and placed in the case file. See IRM 4.71.9 Exhibit 4 at IRM 4.71 - Employee Plans Examination Exhibits for the Form 1041 Statute Expiration Chart.

4.71.9.5.2  (07-29-2014)
Statute of Limitations for Form 5330

  1. For Chapter 43 excise taxes other than IRC 4975, the statute of limitations commences to run only when the Form 5330 is filed or due, whichever is later. Examples of excise taxes where the filing of Form 5330 begins the running of the statute are:

    1. IRC 4971 - Failure to meet minimum funding standards. Form 5330 for excise tax under IRC 4971 is due by the later of the last day of the 7th month after the end of the employer’s tax year, or 8 1/2 months after the last day of the plan year that ends with or within the employer’s tax year. The employer is responsible for filing Form 5330.

    2. IRC 4972 - Nondeductible contributions to qualified employer plans. Form 5330 for excise tax under IRC 4972 is due by the last day of the 7th month after the end of the tax year of the employer or other person who must file the return. The employer is responsible for filing Form 5330.

    3. IRC 4973(a)(3) - Excess contributions to a section 403(b)(7)(A) custodial account. Form 5330 for excise tax under IRC 4973 is due by the last day of the 7th month after the end of the tax year of the employer or other person who must file the return. The individual who is liable for the tax under section 4973(a)(3) is responsible for filing Form 5330.

    4. IRC 4976 - Maintaining a funded welfare benefit plan that provides a disqualified benefit during any tax year. Form 5330 for excise tax under IRC 4976 is due by the last day of the 7th month after the end of the tax year of the employer or other person who must file the return. The employer is responsible for filing Form 5330.

    5. IRC 4978 and 4978A - Certain ESOP dispositions. Form 5330 for excise tax under IRC 4978 is due by the last day of the 7th month after the end of the tax year of the employer or other person who must file the return. The employer is responsible for filing Form 5330.

    6. IRC 4979 - Excess contributions and excess aggregate contributions to plans with cash or deferred arrangements. Form 5330 for excise tax under IRC 4979 is due by the last day of the 15th month after the close of the plan year to which the excess contributions or excess aggregate contributions relate. The employer is responsible for filing Form 5330.

    7. IRC 4979A - Certain prohibited allocations of qualified securities by an ESOP. Form 5330 for excise tax under IRC 4979A is due the last day of the 7th month after the end of the tax year of the employer. The employer is responsible for filing Form 5330.

    8. IRC 4980 - Reversion of qualified plan assets to employers. Form 5330 for excise tax under IRC 4980 is due no later than the last day of the month following the month in which the reversion occurred. The employer is responsible for filing Form 5330.

  2. In general, for Forms 5330 filed for IRC 4975 excise tax:

    1. The three-year statute of limitations will commence to run on the date the administrator files the Form 5500 series return in which the prohibited transaction is sufficiently disclosed. See IRC 6501(l)(1).

    2. If the filed Form 5500 does not disclose the prohibited transaction, the six-year statute period applies. The excise tax may be assessed at any time within six years after the later of the date the Form 5500 series return was filed or due.

      Note:

      Written approval from Area Counsel is required whenever a statute of limitations beyond three years is being pursued. Agents should take the most conservative approach and protect the three-year statute, if possible, even though a six year statute appears applicable.

  3. For prohibited transactions under IRC 4975 involving a discrete act (one-time occurrence, such as a sale), even though the taxes are imposed annually, there is only one period of limitations applicable to all the tax attributable to the prohibited transaction. Therefore, the filed or due date to be used in determining the statute of limitations date is limited to that of the initial Form 5500 return filed for the period in which the discrete act occurred.

    1. It is the filing of the Form 5500 for the plan year in which the prohibited transaction occurs that starts the running of the statute of limitations for IRC 4975 excise tax imposed on a disqualified person for a discrete act. The Form 5500 filed for the year in which the discrete act occurred governs the Form 5330 statute of limitations for the initial year of the transaction and for all subsequent year Forms 5330 reporting tax for that transaction.

    2. The IRS must assess all excise taxes on a disqualified person for a discrete transaction, even those payable in later tax years, before the statute of limitations expires for the tax year in which the transaction initially occurred. The IRS cannot assess any excise tax on a prohibited transaction payable in any year, once the statute has expired for the taxable year of the disqualified person in which the transaction occurred if that prohibited transaction is a discrete act.

    3. See IRM 4.71.9.6.2(7) below for instructions on preparing Form 872 for a prohibited transaction that is a discrete act.

  4. For a prohibited transaction that is considered a continuing transaction, such as a loan or lease, the situation is different.

    1. In addition to the original transaction, a new transaction is deemed to occur on the first day of each subsequent taxable year of the disqualified person. The amount involved is reported and taxed in the initial tax year and again in each subsequent tax year until the original transaction is corrected.

    2. The filing of the Form 5500 return for the year in which the prohibited transaction first occurred starts the running of the statute of limitations for purposes of the tax on the actual transaction occurring in that plan year. It does not start the running of the statute of limitations for the transactions deemed to occur in subsequent plan years.

    3. There are separate statute of limitations for the transactions deemed to occur in each subsequent year. The filing of the Form 5500 return for each subsequent plan year starts the running of the statutes for transactions deemed to reoccur in subsequent years.

    4. Unlike a discrete act, the statutory period may expire for the act engaged in the first year, but the tax may be assessed for subsequent acts deemed to have occurred for which the statutory period has not expired.

    5. Excise tax related to a year for which the statute of limitations has expired may not be tiered into later years.

  5. If the excise tax omitted on a filed return is greater than 25% of the excise tax initially reported, the statute of limitations period is six years.

    Note:

    Area Counsel's written advice regarding the applicability of the six-year statute must be obtained and maintained in the case file.

4.71.9.5.3  (07-29-2014)
Statute of Limitations for Form 990-T

  1. If the trust has unrelated business taxable income for the taxable year of $1,000 or more, the trust is required to file a Form 990-T, Exempt Organization Business Income Tax Return.

  2. Form 990-T is due on the 15th day of the fourth month following the close of the taxable year of the trust.

  3. If the trust files a Form 990-T, then the Form 990-T is the return that begins the running of the statute of limitations on the Form 990-T.

  4. If the Form 990-T is not filed, the statute of limitations starts to run based upon the Form 5500 return if:

    1. The plan administrator files the Form 5500 series return, and

    2. The Form 5500 discloses sufficient information to reveal the existence of unrelated business income (UBI).

      Note:

      The Service's position on adequate disclosure is found in Revenue Ruling 69-247. Although specifically citing Form 990, the same principles apply to Form 5500. Per Revenue Ruling 69-247, the return (e.g., Form 990 or Form 5500) "must state the nature of the income-producing activity with sufficient specificity" to enable the Commissioner to determine whether the income is from a related activity and must disclose the gross receipts from the activity. If the information return does not disclose facts sufficient to apprise the Service of the nature and amount of the income, the Service follows the position of Rev. Rul. 62-10, which is that the filing of the information return (e.g., Form 5500) does not start the period of limitations for purposes of assessment of unrelated business income tax.

  5. If the Form 990-T is not filed, and the criteria in paragraph (4) are not met, the statute of limitations does not begin to run.

  6. If the trust files Form 990-T and the amount of omitted gross income from unrelated business activity is greater than 25% of the reported gross income from unrelated business activity, the statute of limitations period is six years from the date the Form 990-T return was filed.

    Note:

    Area Counsel's written advice regarding the applicability of the six-year statute must be obtained and maintained in the case file.

4.71.9.5.4  (07-29-2014)
Statute of Limitations for Form 1040 and Form 1120

  1. The normal statute of limitations for Forms 1040 and Forms 1120 expires three years from the due date of the return or the date filed, whichever is later. A return is deemed filed on the due date of the return if filed on or before its due date.

  2. Forms 1040 are due on April 15th following the end of the tax year of the individual. For example, Form 1040 for a tax year ending December 31, 2013 was due on April 15, 2014.

  3. Forms 1120 are due on the 15th day of the third month following the end of the tax year of the corporation. For example, Form 1120 for a tax year ending December 31, 2013 was due on March 15, 2014.

  4. If the gross income omitted on the Form 1040 or Form 1120 return is greater than 25% of the reported gross income, the statute of limitations period is six years from the date the applicable return was filed.

    Note:

    Area Counsel's written advice regarding the applicability of the six-year statute must be obtained and maintained in the case file.

4.71.9.6  (07-29-2014)
Preparation and Processing of Consents to Extend the Statute of Limitations

  1. The most current version of Form 872-H should be used when extending a statute of limitations for a Form 990-T or Form 1041 related to Form 5500.

  2. The most current version of Form 872 should be used when extending a statute of limitations for a Form 5330, Form 1040, or Form 1120.

  3. The most current version of Form SS-10 should be used when extending a statute of limitations for a Form 941. See IRM 4.71.9.7, Monitoring the Statute Date on a Non-Return Unit (NRU) Case.

  4. The consent must be prepared by the IRS, not by the taxpayer or the Power of Attorney (POA).

  5. The consent must be prepared in duplicate.

  6. Both consents must be signed with the original signature(s) of the taxpayer(s) or valid POA and dated, and returned to the IRS.

    1. Preparer/taxpayer signature stamps or carbon signatures will not be permitted when signing consent forms.

    2. Make sure that the individual who signs Forms 872 or 872-H on behalf of the taxpayer is properly authorized to sign.

    3. If Forms 872 or 872-H are signed by an individual other than the taxpayer, Form 2848, Power of Attorney & Declaration of Representative, should be carefully inspected to make sure the individual who signed is authorized to sign the consent for that particular return and year.

  7. Consents with alterations, erasures, and corrections should not knowingly be provided to the taxpayer for signature, regardless of how slight or immaterial.

  8. If the taxpayer has made alterations on the consent, it is preferred that a new consent be prepared for the taxpayer’s signature.

    1. However, if the alterations on the consent are acceptable to the Service, the taxpayer has initialed each alteration, and there is not sufficient time to perfect the consent, the Service representative signing the consent may initial alterations and sign the consent.

    2. Advice of Area Counsel must be sought before accepting an altered consent.

    3. For additional guidance on restricted consents, see IRM 25.6.22.8.

  9. The Service will not make changes to a consent form after execution by the taxpayer.

  10. Consents will not be accepted via fax or email.

  11. If it is later discovered that consents mailed to the taxpayer contain errors, corrected consents must be prepared and mailed to the taxpayer.

    1. For this purpose Letter 1817-A Letter to Taxpayer Regarding Consents - EP may be used to transmit corrected consents to the taxpayer. See IRM 4.71.9 Exhibit 5 at IRM 4.71 - Employee Plans Examination Exhibits.

    2. Letter 1817-A may also be used to solicit Form 56 if Form 872-H is received from the taxpayer without Form 56.

  12. After both consent forms have been executed by an authorized IRS employee, one original will be maintained in the case file and the second original will be returned to the taxpayer.

    Note:

    If the taxpayer/POA only returns one original Form 872 or Form 872-H, a signed copy will be returned to the taxpayer/POA and the original kept with the case file.

  13. Per IRS Delegation Order 25-2, group managers and Reviewers (grade GS-11 or higher) are authorized to sign consents (Form 872 or Form 872-H).

  14. Persons officially acting for someone authorized to sign consents may sign consents.

    1. Caution should be exercised to document the authority for the acting assignment in the event the person’s authority to sign the consent is later questioned.

    2. The document giving authority to act should be attached to the Service’s copy of the consent.

  15. The Service official executing the consent should enter the date in the space provided to the right of his/her signature.

4.71.9.6.1  (07-29-2014)
Securing Consents for Forms 5500/1041

  1. Solicit a statute extension if the statute will expire within 210 days on an agreed case and one year on an unagreed case.

    Note:

    When a Form 5500 examination is closed from the group, there should be at least 180 days remaining on the statute of limitations if the case is agreed and one year if the case is unagreed.

  2. Consents related to a Form 5500 are secured with respect to Form 1041, U.S. Income Tax Return for Estates and Trusts.

  3. The most current version of Form 872-H should be used when extending a statute of limitations for a Form 1041 related to a Form 5500.

  4. Form 56 must also be sent to the trustee(s) for completion when extending the statute of limitations on a trust. See IRM 4.71.9 Exhibit 6 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 56.

    Note:

    Form 56 must be prepared for an individual and signed by that individual. It should not be prepared for a trust department.

  5. The statute of limitations for a Form 1041 related to a Form 5500 expires three years from the later of:

    1. The due date of the Form 5500 (the last day of the seventh month after the end of the plan year), or

    2. The date the Form 5500 was filed.

  6. Once a plan is no longer qualified under IRC 401(a), realized income earned by the trust becomes taxable.

    1. The trust must file a Form 1041 for those years during which the plan is disqualified and the statute of limitations is open.

    2. The Form 1041 is filed on behalf of the trust by the trustee.

    3. The trust is responsible for paying the tax, and the trustee is responsible for making sure the Form 1041 is filed and the taxes are paid.

    4. It is the trustee (or authorized representative) who must sign the statute extension form (Form 872-H) in order for the extension to be valid.

      Note:

      If the trust has multiple trustees then the trust document must be reviewed to determine if multiple trustees are required to sign Form 872-H.

      Note:

      The agent must verify fiduciary authority to ensure the validity of the consent. This can be verified by reviewing the plan and/or trust instrument. The case file should contain a copy of the documentation under which the fiduciary derives the authority to act and which documents, the fact that such authority remains in full force and effect on the date the consent is signed by the fiduciary.

    5. Form 872-H must be signed by a current trustee and dated, which may be a different individual than the person who was trustee when Form 5500 was filed.

  7. Use Form 872-H, Consent to Extend the Time to Assess Tax on a Trust, when extending a statute of limitations for a Form 1041 related to Form 5500.

  8. Since an examination of Form 5500 may result in the revocation or disqualification of the plan, consents must be secured for the trust for the calendar year.

    Note:

    IRC 644(a) provides that the taxable year of any trust is a calendar year. Per IRC 644(b), there is an exception for a trust that is exempt under IRC 501(a). If a determination is made that the plan is not qualified under IRC 401(a), the associated trust would also not be qualified under IRC 501(a). Therefore, consents are obtained for the calendar year.

  9. The statute of limitations on the trust year runs with the filing of the Form 5500 for the plan year in which the trust year ends. For example, if the plan years ending 9/30/2011 and 9/30/2012 are being examined and it is determined that issues exist that may result in revocation or disqualification of the plan:

    1. Form 872-H would be secured for the trust year ending 12/31/2010. If the Form 5500 for the 9/30/2011 plan year was filed timely on 4/30/2012, the statute of limitations for the trust year ending 12/31/2010 would expire on 4/30/2015.

    2. Form 872-H would be secured for a short trust year (10/1/2010 through 12/31/2010) if the 9/30/2011 plan year is the initial year of proposed revocation or disqualification (for example, the plan sponsor failed to include eligible employees in the plan and no determination was made that the same issue occurred in the 9/30/2010 plan year).

      Note:

      See IRM 4.71.9 Exhibit 7 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 872-H for a short tax year.

    3. If it becomes necessary to extend the statute of limitations for the trust year ending 12/31/2011, Form 872-H for the trust year ending 12/31/2011 would be completed for a full calendar year (1/1/2011 through 12/31/2011). The statute of limitations would be based on the Form 5500 for the plan year ending 9/30/2012. The statute of limitations for the trust year ending 12/31/2011 would expire on 4/30/2016 if the Form 5500 for the 9/30/2012 plan year was timely filed on 4/30/2013.

      Note:

      When it becomes necessary to extend the statute of limitations for the trust year ending 12/31/2011, do not neglect to also extend the statute for the trust year ending 12/31/2010. See IRM 4.71.9 Exhibit 9 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 872-H for the short tax year (12/31/2010) and the subsequent full trust year (12/31/2011).

    4. If the plan disqualification extends to an earlier plan year, Form 872-H would be secured for the entire 2010 calendar year (for example, the plan sponsor failed to amend the plan timely for EGTRRA, or the plan sponsor failed to include eligible employees in the plan in an earlier plan year).

      Note:

      See IRM 4.71.9 Exhibit 8 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 872-H for a full trust year.

  10. Generally, the name of the trust listed on the applicable Form 5500 should be listed on the "Name(s)" line of Form 872-H, unless since filing, there has been a name change.

  11. If the trust name has changed since the applicable Form 5500 was filed, the consent should be prepared using both the current trust name and the former name of the trust (e.g., "XYZ Profit Sharing Trust, formerly XYZ ESOP Trust" ).

  12. The plan number should also be included on the "Name(s)" line.

  13. If the trust has an EIN, it should be listed on the "Taxpayer Identification Number" line in the header of Form 872-H.

    1. The plan sponsor's EIN should not be listed on Form 872-H.

    2. If the trust does not have an EIN, then the “Taxpayer Identification Number” line on Form 872-H should be left blank.

    3. Research should be conducted to determine if the trust has an EIN. This determination can be made by asking the plan sponsor or trustee if the trust has its own EIN. Additionally, the existence of a trust EIN may be revealed through the review of documentation received during the examination of plan assets.

      Note:

      The correctness of an EIN should be verified through IDRS research with the INOLES command code (i.e., INOLES75-0000000).

    4. If the trust does not have its own EIN, the taxpayer can obtain an EIN for the trust by filing Form SS-4 (see Form SS-4 instructions).

  14. Input the current address on the appropriate lines.

  15. Input the word "Income" on the "Kind of tax" line of Form 872-H.

  16. Input a date on the "Expiration date" line of Form 872-H that is far enough in the future to allow ample time for the case to process.

    Note:

    When a Form 5500 examination is closed from the group, there should be at least 180 days remaining on the statute of limitations if the case is agreed and one year if the case is unagreed.

  17. The following information must be input in the Internal Revenue Service Signature and Title section:

    1. Type the name of the authorized individual's name (e.g., group manager's name) who will sign the consent on the IRS Official's Name line.

    2. Type in the title of the authorized individual (e.g., Manager, Group 7672) on the IRS Official's Title line.

  18. Form 56 should be completed in accordance with IRM 4.71.9 Exhibit 6. See IRM 4.71.9 Exhibit 6 at IRM 4.71 - Employee Plans Examination Exhibits.

    Note:

    If the trust does not have an EIN, the EIN on Form 56 should be left blank.

  19. Form 56 must be mailed to the trustee along with the two original Forms 872-H.

  20. The trustee(s) must sign both Forms 872-H exactly as his/her name appears on Form 56. The trustee must be a current trustee.

  21. Per IRS Delegation Order 25-2 , group managers and reviewers (grade GS-11 or higher) are authorized to sign consents (Form 872 or Form 872-H).

  22. Persons officially acting for someone authorized to sign consents may sign consents.

    1. Caution should be exercised to document the authority for the acting assignment in the event the person’s authority to sign the consent is later questioned.

    2. The document giving authority to act should be attached to the Service’s copy of the consent.

  23. Make sure the consent is dated on the "Date signed" line next to the signatures.

4.71.9.6.2  (07-29-2014)
Securing Consents for Form 5330

  1. The most current version of Form 872 should be used when extending a statute of limitations for a Form 5330.

  2. Solicit a statute extension if the statute will expire within 210 days on an agreed case and one year on an unagreed case.

    Note:

    When a Form 5330 examination is closed from the group, there should be at least 180 days remaining on the statute of limitations if the case is agreed and one year if the case is unagreed.

  3. A Form 5330 exam is considered agreed if:

    1. The issue giving rise to the excise tax has been corrected (in the case of IRC 4971 and IRC 4975 excise tax), and

    2. Form 5330 (or Form 870-EP, Waiver of Restrictions on Assessment & Collection of Deficiency in Tax & Acceptance of Overassessment) has been filed for the correct amount of tax.

    Note:

    A case is considered to be an agreed case if these two items occur, even if no taxes have been paid at the time the case is ready to close.

  4. Remember that for Chapter 43 excise taxes, other than for prohibited transactions (IRC 4975), the statute of limitations commences to run only when the Form 5330 is filed or due, whichever is later, so for all excise taxes other than IRC 4975, preparation of Form 872 is only necessary if:

    1. Form 5330 was filed,

    2. The tax reported is incorrect, and

    3. The statute of limitations is less than the number of days specified in paragraph (2) above.

    Note:

    See IRM 4.71.9.5.2 above for additional information on determining the statute of limitations for Forms 5330.

  5. Remember that for IRC 4975 excise tax, the statute of limitations is initially based on the statute of limitations date of the Form 5500 series return filed for the plan year in which the prohibited transaction occurred. The normal statute of limitations date is three years following the later of the date the Form 5500 was filed or due.

  6. When preparing Form 872 to extend the statute of limitations for a Form 5330 for any excise tax listed in IRM 4.71.9.5.2 other than tax under IRC 4975 for a discrete prohibited transaction, it should be completed as follows:

    1. List the complete name of the person or entity responsible for filing the Form 5330 on the "Name(s)" line.

    2. List the employer identification number (EIN) or social security number (SSN) of the person responsible for filing the Form 5330 in the "Taxpayer Identification Number" block.

    3. List the current address of the person or entity responsible for filing the Form 5330 on the address line.

    4. Insert "excise" as the type of tax.

    5. Enter the tax period for which the statute is being extended.

    6. Input a date on the "Expiration date" line of Form 872 that is far enough in the future to allow ample time for the case to process.

    7. Fill in the name and title of the authorized individual who will sign on behalf of the Service (normally the group manager).

      Note:

      Per IRS Delegation Order 25-2, group managers and Reviewers (grade GS-11 or higher) are authorized to sign consents (Form 872 or Form 872-H).

    8. Persons officially acting for someone authorized to sign consents may sign consents. Caution should be exercised to document the authority for the acting assignment in the event the person’s authority to sign the consent is later questioned. The document giving authority to act should be attached to the Service’s copy of the consent.

    9. Make sure the consent is dated on the "Date signed" line next to the signatures.

    10. See IRM 4.71.9 Exhibit 10 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Form 872 for a continuing prohibited transaction.

  7. For prohibited transactions involving a discrete act, the agent must obtain an extension that covers not only the tax year of the disqualified person for the year in which the act occurred, but also each subsequent year.

    1. The preferred way to do this is to prepare a restricted consent that specifies the type of tax (IRC 4975 excise tax) and the initial year in paragraph (1) of Form 872.

    2. The consent should include an additional paragraph (6) that lists each subsequent tax year beginning with the second tax year and ending with the current tax year. For example: Assume a discrete prohibited transaction occurred on July 1, 2010, during the plan year ending December 31, 2010. Also assume that the transaction involves a disqualified person with a calendar tax year. If the consent is being mailed on July 10, 2014, paragraph (6) would read as follows: "This consent also applies to returns filed for the periods ended December 31, 2011; December 31, 2012; December 31, 2013, and December 31, 2014 for tax attributable to prohibited acts occurring during the plan year ending December 31, 2010."

    3. See IRM 4.71.9 Exhibit 11 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Form 872 for a discrete prohibited transaction.

    Note:

    For discrete acts, the statute is technically extended for each affected taxable year if a consent is obtained with respect to the year in which the prohibited transaction occurred. However, obtaining an extension that covers each year will resolve any questions as to whether later years have closed because specific extensions were not obtained for those years.

  8. For prohibited transactions involving either discrete or continuing transactions:

    1. More than one disqualified person may be involved in the same prohibited transaction. In such cases, all of the parties are jointly and severally liable.

    2. Secure the consent to extend the statutory period from all disqualified persons who may be subject to tax on the prohibited transaction.

      Note:

      Remember that, initially, the three-year statute of limitations will commence to run on the date the administrator files the Form 5500 series return in which the prohibited transaction is sufficiently disclosed.

    3. While each disqualified person must sign a separate consent, only one must pay the tax.

    4. Obtaining a statute extension for the Form 5500 does not extend the statute of limitations for IRC 4975 excise tax on a prohibited transaction that occurred in that plan year.

4.71.9.6.3  (07-29-2014)
Securing Consents for Form 990-T

  1. If the trust has engaged in activities which result in unrelated business taxable income (UBI), the trust is required to file a Form 990-T for those years during which the trust has engaged in such activities and for which the statute of limitations is open.

  2. If the trust files a Form 990-T, then the Form 990-T is the return that begins the running of the statute of limitations on the Form 990-T.

  3. If the Form 990-T is not filed, the statute of limitations starts to run based upon the Form 5500 return if:

    1. The plan administrator files the Form 5500 series return, and

    2. The Form 5500 discloses sufficient information to reveal the existence of UBI.

  4. The Form 990-T is filed by the trustee(s) on behalf of the trust.

  5. The trust is responsible for paying the tax, and the trustee is responsible for making sure the Form 990-T is filed and that the taxes are paid.

  6. It is the trustee who must sign the Form 872-H in order for the extension to be valid.

    Note:

    If the trust has multiple trustees then the trust document must be reviewed to determine if multiple trustees are required to sign Form 872-H.

    Note:

    The agent must verify fiduciary authority to ensure the validity of the consent. This can be verified by reviewing the plan and/or trust instrument. The case file should contain a copy of the documentation under which the fiduciary derives the authority to act and which documents, the fact that such authority remains in full force and effect on the date the consent is signed by the fiduciary.

  7. Form 56, must also be sent to the trustee(s) for completion when extending the statute of limitations on a trust. See IRM 4.71.9 Exhibit 6 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 56.

    Note:

    Line 4h in section B of Form 56 should be checked and "Form 990-T" inserted in the space provided.

  8. If the trust is required to file a Form 990-T, the taxable year of the trust is the same as the plan year of the trust. Because the trust does not lose its exempt status due to UBI, if the plan is on a calendar year, the Form 990-T will be filed based upon a calendar year. If the trust is on a fiscal year, the Form 990-T will be filed based upon the plan’s fiscal year. The Form 872-H must reflect the plan year of the trust as the period being extended.

  9. When preparing Form 872-H to extend the statute of limitations for a Form 990-T, it should be completed as follows:

    1. List the name of the trust on the "Name(s)" line of Form 872-H.

      Note:

      If the trust name has changed since the applicable Form 5500 was filed, the consent should be prepared using both the current trust name and the former name of the trust (e.g., "XYZ Profit Sharing Trust, formerly XYZ ESOP Trust" ).

    2. List the employer identification number (EIN) of the trust in the "Taxpayer Identification Number" block.

      Note:

      Do not use the plan sponsor's EIN. If the trust does not have an EIN, one must be obtained before a consent can be secured for Form 990-T. See IRM 4.71.10.4.1 for the procedures in obtaining a trust EIN.

    3. List the current address of the trust on the address line.

    4. Insert "income" as the type of tax.

    5. Enter the tax period for which the statute is being extended.

      Note:

      For Form 990-T this would be the same period as the plan year.

    6. Input a date on the "Expiration date" line of Form 872-H that is far enough in the future to allow ample time for the case to process.

    7. Type the name of the authorized individual's name (e.g., group manager's name) who will sign the consent on the IRS Official's Name line.

    8. Per IRS Delegation Order 25-2, group managers and Reviewers (grade GS-11 or higher) are authorized to sign consents (Form 872 or Form 872-H).

    9. Persons officially acting for someone authorized to sign consents may sign consents. Caution should be exercised to document the authority for the acting assignment in the event the person’s authority to sign the consent is later questioned. The document giving authority to act should be attached to the Service’s copy of the consent.

    10. Make sure the consent is dated on the "Date signed" line next to the signatures.

  10. See IRM 4.71.9 Exhibit 12 at IRM 4.71 - Employee Plans Examination Exhibits for an example of Form 872-H for Form 990-T.

4.71.9.6.4  (07-29-2014)
Securing Consents for Form 1040 and Form 1120

  1. The most current version of Form 872 should be used when extending a statute of limitations for a Form 1040 or Form 1120.

  2. Solicit a statute extension if the statute will expire within 210 days on an agreed case and one year on an unagreed case.

    Note:

    When a Form 1040 or Form 1120 discrepancy adjustment is closed from the group, there should be at least 180 days remaining on the statute of limitations if the case is agreed and one year if the case is unagreed.

    Note:

    A case is considered agreed if Form 4549-E is signed by the taxpayer.

  3. Form 872 should be completed as follows:

    1. The consent should be prepared using the same name(s) as that under which the return was filed, unless since filing, there has been a name change. In this case, the consent should be prepared using both names (e.g., "Mary J. Smith, formerly Mary J. Brown" ).

    2. For a jointly filed Form 1040, the names of both spouses should be listed (e.g., William L. Smith and Jane M. Smith).

    3. List the employer identification number (EIN) or social security number (SSN) in the "Taxpayer Identification Number" block. For a jointly filed Form 1040, list only the primary SSN.

    4. Insert "income" as the type of tax.

    5. The taxpayer’s current address should be used, rather than the address shown on the return. The current address should be determined based on the best information available, including IDRS, correspondence from the taxpayer, etc.

    6. Enter the tax period for which the statute is being extended.

    7. The year covered by the consent should be stated in full, including the month, day, and year.

    8. Input a date on the "Expiration date" line of Form 872 that is far enough in the future to allow ample time for the case to process.

    9. Type the name of the authorized individual's name (e.g., group manager's name) who will sign the consent on the IRS Official's Name line.

    10. The consent must be signed and dated by a corporate officer when extending the statute for a Form 1120.

    11. The consent must be signed and dated by both spouses when extending the statute for a jointly filed Form 1040.

      Note:

      Alternatively, each spouse (or former spouse, if the taxpayers are no longer married) may sign two copies of separate Forms 872.

    12. Per IRS Delegation Order 25-2 , group managers and Reviewers (grade GS-11 or higher) are authorized to sign consents (Form 872 or Form 872-H).

    13. Persons officially acting for someone authorized to sign consents may sign consents. Caution should be exercised to document the authority for the acting assignment in the event the person’s authority to sign the consent is later questioned. The document giving authority to act should be attached to the Service’s copy of the consent.

    14. Make sure the consent is dated on the "Date signed" line next to the signatures.

  4. Act section 3201(d) of RRA 98 requires that, wherever practicable, any notice relating to a joint return be sent separately to each individual filing the joint return.

    Note:

    If it can be determined with absolute certainty that both individuals reside at the same address, then it is not necessary that the consents be mailed separately. The agent must document in the Case Chronology Record (CCR) how it was determined that the taxpayers resided at the same address.

4.71.9.6.5  (07-29-2014)
Letters Used to Transmit Consents

  1. The following letters are used to transmit consents to the taxpayer with copies to the Power of Attorney (POA):

    1. Letter 907-A, Request to Extend Statute Letter is used to transmit the applicable consent forms (two originals of each consent) to the taxpayer or POA. See IRM 4.71.9 Exhibit 13 at IRM 4.71 - Employee Plans Examination Exhibits.

    2. Letter 928, Request to Extend Statute-Follow-up Letter is used as a follow-up to Letter 907-A when the requested consents have not been timely received from the taxpayer. See IRM 4.71.9 Exhibit 14 at IRM 4.71 - Employee Plans Examination Exhibits.

    3. Letter 929, Transmittal to Taxpayer of Copy of Signed Consent is used to transmit the original executed consent form to the taxpayer or POA. See IRM 4.71.9 Exhibit 15 at IRM 4.71 - Employee Plans Examination Exhibits.

    4. Letter 1817-A is used to request additional information or send the taxpayer revised consent forms if it is necessary to secure a revised consent. See IRM 4.71.9 Exhibit 5 at IRM 4.71 - Employee Plans Examination Exhibits.

    5. If the taxpayer has a POA, a copy of the same documents mailed to the taxpayer should be mailed to the POA. For this purpose, cover letter 937-A, Transmittal Letter for Power of Attorney should be used.

    Note:

    When preparing any of these letters, make sure the agent's address is included in the top header, and that the correct taxpayer information is included on the address line and in the spaces in the upper right header.

  2. When Letter 907-A is mailed to the taxpayer, include the following items as enclosures:

    1. Two copies of the consent form (Form 872 or Form 872-H),

    2. Publication 1035, Extending the Tax Assessment Period,

    3. Form 56 (if the consent pertains to Form 1041 or Form 990-T), and

    4. A self-addressed return envelope.

  3. If the applicable return is a jointly filed Form 1040 and both spouses are residing at the same mailing address, then mail or present one complete set of documents, which contains Letter 907-A addressed to both spouses at the common address, Pub 1035 and two copies of Form 872.

  4. If the applicable return is a jointly filed Form 1040 and it has been determined that both spouses are not residing at the same address, document the separate addresses in the Case Chronology Record (CCR) and mail separately a complete set of documents, which contains Letter 907-A, Pub 1035 and two copies of Form 872, to each spouse and document the CCR with the date and fact that separate mailings were made to each spouse.

  5. Two original executed consent forms (Form 872 or Form 872-H) should be received from the taxpayer.

    1. Both forms should be executed by an authorized IRS representative.

    2. One original should be included in the case file and the other original should be mailed back to the taxpayer.

    3. See IRM 4.71.12 for case file assembly procedures.

  6. A copy of all letters mailed in paragraph "1" must be saved in the RCCMS Office Documents folder using the RCCMS Naming Convention.

4.71.9.7  (07-29-2014)
Monitoring the Statute Date on a Non-Return Unit (NRU) Case

  1. Although an NRU specifically does not have a statute date, there are returns with statute of limitations affected by the NRU plan under examination.

  2. RCCMS must be used to track the statute expiration date of the related affected return.

  3. The statute date of the related Form 941, Form 1120, or Form 1040 affected by the Non-Return Unit audit should be entered in the Statute block in RCCMS for all NRU cases.

    Note:

    The statute date will assist the agent and manager in monitoring the case for a timely referral or discrepancy adjustment when necessary.

  4. For IRC 403(b) and 457(b) examinations, the related return affected will be Form 941 filed for the last quarter for the tax year examined.

    1. Forms 941 are due by the last day of the month following the end of the quarter (January 31 for the fourth quarter), but the statute of limitations expires the later of three years from April 15th of the year following the year for which the return was due or three years after the date the return was actually filed, whichever is later.

      Note:

      The statute of limitations expiration date for Form 941 filed for the fourth quarter of 2011 would be the later of April 15, 2015 or three years from the date the Form 941 was filed.

    2. Forms 941 filed for 403(b) and 457(b) examinations will not be controlled on the AIMS system.

    3. Even though the Form 941 statute will not be controlled through AIMS for the tax years reviewed, the agent must take the proper steps to protect the government’s interests for any potential adjustments to that return.

    4. Those steps may include working collaterally with Exempt Organizations (EO) or Federal State & Local Government (FSLG) business units to insure the Form 941 statute is protected for any adjustments being proposed.

    5. The statute of limitations for Form 941 is extended by Form SS-10. Consent to Extend the Time to Assess Employment Taxes. See IRM 4.71.9 Exhibit 18 at IRM 4.71 - Employee Plans Examination Exhibits.

    6. A copy of the Form SS-10 should be kept in the EP case file and if possible, saved in RCCMS regardless of whether it is secured by another Business Operating Division.

    7. If the return is not charged out to any group (the exam is not established on AIMS by either EP, EO, FSLG, SB/SE or LB&I), update the statute on Master File using Form 3177 Notice of Action for Entity on Master File.

  5. When updating the statute of limitations for a Form 941 for which an examination has not yet been established on AIMS, Form 3177 should be completed and processed as follows:

    1. Initiator – Enter the agent’s name and phone number.

    2. Date – Enter the current date.

    3. Taxpayer Name – Enter the name of the Taxpayer.

    4. EIN OR SSN – Enter the TIN of the Taxpayer.

    5. TRC – Highlight "560" and enter the new statute date as MM/DD/YY.

    6. MFT Code – Enter 01 for Form 941.

    7. Taxable Period – Enter the taxable period being extended as YYYYMM.

    8. Fax the completed Form 3177 and Form SS-10 to the manager of the Support Processing Unit (EP Closing Unit) in Brooklyn. The fax number is 718-834-6521.

    9. The Fax Cover Sheet should contain the following note: "Please update the statute on Form 941. The return is not controlled on AIMS" .

  6. For IRA SIMPLE, SEP, SARSEP, and IRC 457(f) examinations, the related return affected will normally be the Form 1040 for the tax years under examination for the individual participants.

    1. In addition, the Form 1120 can be a related return of concern for the IRA plan sponsor if potential discrepancy adjustments are proposed as a result of an improper deduction for employer contributions to the IRA accounts of participants.

    2. The statute date of the Form 1040 should be the date used for IRA cases (SIMPLE, SEP and SARSEP) and IRC 457(f) cases on RCCMS.

  7. Because related Form 941, 1040 and 1120 tax returns can be affected by NRU examinations, agents should review IRM 4.71.9.5 before opening an examination of a particular year.

  8. For NRU examinations, the statute date for related tax returns should be closely monitored as outlined in this IRM 4.71.9.

4.71.9.8  (07-29-2014)
Securing Consents for IRC 6707A Penalties

  1. IRC 6707A, imposes a penalty for failure to include "reportable transaction" information on a return.

  2. Per IRC 6707A (c)(1), the term "reportable transaction" means any transaction with respect to which information is required to be included with a return or statement because such transaction is of a type which the Secretary determines as having a potential for tax avoidance or evasion.

    1. A "listed transaction" is a type of "reportable transaction" .

    2. A "listed transaction" is defined as a reportable transaction which is the same as, or substantially similar to, a transaction specifically identified by the Secretary as a tax avoidance transaction for purposes of IRC 6011.

  3. Generally, the initial statute of limitations period for purposes of IRC 6707A is determined by the statute of limitations for the applicable tax return(s) (Forms 1040, 1120 1120-S or 1065), which is the later of three years from the date the return is filed or due.

  4. If a "reportable transaction" exists, IRC 6011 requires that the transaction be reported on the applicable income tax returns (Forms 1040, 1120, 1065) of the entities involved in the transaction.

  5. If Form 8886, Reportable Transaction Disclosure Statement, is not filed with the applicable tax return(s) and the Office of Tax Shelter Analysis (OTSA), IRC 6501(c)(10) will control the statute of limitations of assessment.

  6. If the normal statute has expired, written approval from Counsel is required for support of the extended statute for a "listed transaction" under IRC 6501(c)(10).

  7. Per IRC 6501(c)(10), if a taxpayer fails to include on any return or statement for any taxable year any information with respect to a "listed transaction" , which is required under IRC 6011 to be included with such return or statement, the time for assessment of any tax imposed by this title with respect to such transaction shall not expire before the date which is 1 year after the earlier of--

    1. the date on which the Secretary is furnished the information so required, or

    2. the date that a material advisor meets the requirements of section 6112 with respect to a request by the Secretary under section 6112(b) relating to such transaction with respect to such taxpayer.

  8. The additional statute period under paragraph (7) may only be pursued with Counsel’s written concurrence.

    1. The written approval from Counsel must be included in the penalty case file.

    2. Contact information for the applicable Counsel attorney can be obtained from the EP Abusive Tax Avoidance Transaction (ATAT) Coordinator.

  9. Form 5500 is not subject to the IRC 6707A penalty.

  10. When an IRC 6707A penalty file is closed from the group, there should be at least 180 days remaining on the statute of limitations if the case is agreed and one year if the case is unagreed.

    1. Solicit a statute extension if the statute will expire within 210 days on an agreed case and one year on an unagreed case.

    2. A case is considered agreed if Form 870-EP is signed by the taxpayer.

  11. When extending the statute on an IRC 6707A penalty case (Forms 1120, 1120-S, 1065, or 1040), the agent will prepare Form 872 (using the most current version) for each entity or person involved in the transaction as follows:

    1. List the complete name of the person or entity on the "Name(s)" line of Form 872.

    2. List the employer identification number (EIN) or social security number (SSN) on the "TIN" line of the Form 872.

    3. List the current address of the person or entity on the "address" line of Form 872.

    4. If the agent is extending both the income tax statute and IRC 6707A penalty statute, list "Income and IRC 6707A Penalty" on the "Kind of tax" line of Form 872.

    5. If the agent is extending the IRC 6707A penalty statute only, list "IRC 6707A Penalty" on the "Kind of tax" line of Form 872.

    6. Enter the tax period for which the statute is being extended on the applicable line of Form 872.

    7. Enter a date on the "Expiration date" line of Form 872 that is far enough in the future to allow ample time for the penalty case to process.

    8. The consent should include an additional paragraph (6) that reads as follows: "Without otherwise limiting the applicability of this agreement, this agreement also extends to the expiration date identified in paragraph (1) above, the period of limitations for assessing any penalty pursuant to IRC section 6707A, Penalty For Failure to Include Reportable Transaction Information with the Return, with respect to the taxpayers, kind of tax and tax periods identified above."

    9. To extend the statute for a partnership (Form 1065), the Form 872 should be signed by the General Partner and not the Tax Matters Partner. Since there isn’t a line on the Form 872 for a General Partner to sign, the agent should strike through the words "Corporate Name" and insert "Partnership Name" and strike through "Corporate Officer" and insert "General Partner" .

    10. Type the name of the authorized individual's name (e.g., group manager's name) who will sign the consent on the IRS Official's Name line.

    11. Per IRS Delegation Order 25-2, group managers and Reviewers (grade GS-11 or higher) are authorized to sign consents (Form 872).

    12. Make sure the consent is dated on the "Date signed" line next to the signatures.

    13. See IRM 4.71.9 Exhibit 16 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 872 for a IRC 6707A penalty case.

  12. Once a signed Form 872 has been secured and countersigned, the agent must update Non-Master File AIMS for the penalty case, AIMS (for the taxable return if the 872 covers it), and RCCMS.

  13. If the taxable return is established on AIMS, the group responsible for the return must update AIMS.

    1. If the return is charged out to an SB/SE group, that group must update the statute.

    2. If the return is not charged out to any group (the exam is not established on AIMS by either EP, SB/SE or LB&I), please see the instructions in paragraph (14) for updating the statute on Master File using Form 3177.

    3. If Form 872 is secured only for the IRC 6707A penalty, only Non-Master File AIMS for the penalty case and RCCMS would be updated.

  14. When updating the statute of limitations using Form 3177, Notice of Action for Entity on Master File, for a Form 1120, 1120-S, 1065, or 1040 for which an examination has not yet been established on AIMS, Form 3177 should be completed and processed as follows:

    1. Initiator – Enter the agent’s name and phone number.

    2. Date – Enter the current date.

    3. Taxpayer Name – Enter the name of the Taxpayer.

    4. EIN OR SSN – Enter the TIN of the Taxpayer.

    5. TRC – Highlight "560" and enter the new statute date as MM/DD/YY.

    6. MFT Code – Enter 02 for Form 1120, 06 for Form 1065, or 30 for Form 1040.

    7. Taxable Period – Enter the taxable period being extended as YYYYMM.

    8. Fax the completed Form 3177, Form 872 and AMDIS print to the manager of the Support Processing Unit (EP Closing Unit) in Brooklyn. The fax number is 718-834-6521.

    9. The Fax Cover Sheet should contain the following note: "Please update the statute on this return. The return is not controlled on AIMS."

    10. See IRM 4.71.9 Exhibit 17 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 3177.

    Note:

    If a return is controlled on AIMS (an exam of the applicable return has been initiated), this update to the statute is to be completed at the group level by the group with the open exam. It is not to be sent to the manager of the Support Processing Unit.

4.71.9.9  (07-29-2014)
Use of Alpha Codes

  1. In certain instances a two-digit alphabetic code designating a special statute situation may be entered in the day (DD) position of the statute date on AIMS and RCCMS. For example, if a statute is updated to alpha code "PP" and the actual statute expiration date is 07/31/2014, the statute date will be entered on AIMS as 07/PP/2014.

  2. In the past, assessment statutes have expired and the ability to assess a tax liability has been lost through improper use of alpha codes; therefore, it is important that persons making alpha code determinations understand how the tax law impacting the periods of limitation applies in each particular situation.

  3. With the exception of alpha code "EE" , the alpha code should not be entered on AIMS and RCCMS prior to 270 days before expiration of the normal statutory period for assessment. The individual alpha code descriptions discussed below should be read in the context of this general rule.

  4. In non-filer situations, alpha code "EE" may be entered on AIMS at the time the AIMS record for the non-filed tax period is established.

    Note:

    This does not apply to IRC 4975 excise tax if a Form 5500 was filed for the applicable year in which the prohibited transaction occurred or was deemed to re-occur.

  5. Most alpha codes apply only when precise requirements of the law are met. The alpha code should be used only when it is clear that all essential elements of the applicable law are present.

  6. For protection of the persons making and approving the alpha code determination, in cases where the normal statutory period for assessment is still open, Form 895-EP must be prepared at the time the statute is updated and a statement in the "Remarks" section of Form 895-EP is required. The signatures or initials of the employee charged with the return and the manager next to the statement give added assurance that all aspects of the alpha code condition have been carefully considered.

  7. Alpha codes "AA" , "EE" , and "PP" are commonly used within EP Exam.

  8. Alpha code "WW" is used in EP in conjunction with "listed transactions" and corresponding penalties under IRC 6707A.

  9. Alpha codes "CC" and "XX" are used in very specific occasions, as stated in paragraphs (11) and (15) below.

  10. Alpha code "AA" , Claim for Refund/Credit Only Issue, is often used when working claims.

    1. Alpha code "AA" designates a claim for refund/credit was filed timely by the taxpayer and a decision has been made that there are no other issues on the return which will warrant an additional assessment and the claimed refund has not been paid to the taxpayer.

    2. The statute is held open for refund or credit up to the amount of the claim subject to the limitation on the amount provided by the look back rules of IRC 6511(b) (e.g., for a refund claim filed within the 3-year period, the amount is limited to the tax paid during the 3 years immediately preceding the filing of the claim, plus the period of any extension of time for filing the return).

    3. Alpha code "AA" should not be used if there are issues which could result in additional assessment of tax or penalties.

    4. If the statute for assessment is open when a claim is received, the actual statute expiration date, rather than "AA" , should be entered initially on the statute control records.

    5. The statute controls should be updated to "AA" only after the examiner is certain there is no likelihood of a tax or penalty assessment and only after the examiner ascertains that the refund amount has not already been paid to the taxpayer.

    6. Form 895-EP must be prepared when updating the statute of limitations to alpha code "AA" .

    7. An appropriate statement in the "Remarks" section of Form 895-EP would be: "The return was inspected and there are no material issues other than those on the claim and the claimed refund has not been paid."

    8. Even though the assessment statute has expired, other adjustments can be made to taxable income to partially or fully offset the otherwise allowable claim for refund. If the claimed refund has been paid to the taxpayer, then no offsets can made after expiration of the assessment statute of limitations.

    9. Alpha code "AA" may be used for formal claims, informal claims, and for taxpayer requests for abatement of unpaid tax (AIMS source code 73 - Taxpayer Request, also known as Audit Reconsiderations).

  11. Alpha code "CC" is used to reflect tax periods covered by a Form 10498–B, Joint Investigations Intent to Solicit Consent to Extend Statute, or memorandum signed by an Area Manager or Director in TE/GE, stating that no consent to extend the statute should be secured.

    1. An appropriate statement in the Remarks section of Form 895-EP would be: "Concurrence memorandum approved on [date signed by the Area Manager or Director]."

    2. Alpha code "CC" may also be used with a tax return under joint investigation which has a statutory period for assessment that expired before the return was established on AIMS.

    3. If Criminal Investigation withdraws from the joint investigation prior to the expiration of the statute, the statute controls should be updated to reflect the normal statute expiration date, or other applicable alpha code if some other exception to the normal three-year assessment statute applies.

  12. Alpha code "EE" is used when no return has been filed and the statute of limitations has not begun to run.

    1. It would not be appropriate to use alpha code "EE" for a Form 5330 that is due for a prohibited transaction if a Form 5500 series return was filed for the period in which the prohibited transaction occurred or was deemed to occur.

    2. It would not be appropriate to use alpha code "EE" for a Form 990-T if Unrelated Business Income (UBI) was adequately disclosed on the related Form 5500 series return.

    3. It would not be appropriate to use alpha code "EE" for a Form 1040 or Form 1120 discrepancy adjustment prepared by EP.

    4. It would be appropriate to use alpha code "EE" for a Substitute for Return (SFR) Form 5330 for excise tax other than IRC 4975 excise tax.

    5. It would be appropriate to use alpha code "EE" for a SFR Form 5500 series return.

    6. It would be appropriate to use alpha code "EE" for a SFR Form 990-T when UBI is not adequately disclosed on the related Form 5500 series return.

    7. The month and year appearing with alpha code "EE" represent the normal statute expiration date if the return had been timely filed.

    8. When properly used, alpha code "EE" may be entered on AIMS after the SFR Form 990-T, Form 5330, or Form 5500 is processed, the return is posted and the exam is established on AIMS.

    9. If a late filed return is received from a taxpayer, the agent will replace the alpha code "EE" statute designation with the true statute expiration date based on the date the return was received by the Service.

    10. The agent will obtain AIMS transcripts throughout the examination, at least once every six months, to check for posting of a filed return (such as transaction code 976 or 977).

  13. Alpha code "PP" , Non-taxable EP Return, is used only for Form 5500 series returns and with the following guidelines:

    1. The group manager must determine with certainty that Form 1041 will not be due for the period under examination, or in the instance where a timely referral is made to the Exam Functional Unit (e.g., SBSE) that EP is no longer responsible for protecting the statute of limitations on Form 1041.

      Note:

      When a timely referral is made to an Exam Functional Unit for tax due on Form 1041, the statute of limitations may be updated to alpha code "PP" (with group manager approval) within the time frames listed in paragraph "d" of this section.

    2. The group manager will ensure that Form 895-EP is appropriately noted and initialed by the agent and the group manager.

    3. The group manager will ensure that a memorandum of explanation (signed by the manager and detailing the reasons for not extending the statutory period) is attached to the Form 895-EP in the case file, and a copy of the memo is sent to the Area Manager.

    4. Unless the exception stated in paragraph "e" of this section applies, the statute may only be updated to alpha "PP" by the examining group when there is at least 60 days remaining on the statute of limitations, but no more than 270 days remaining.

    5. When a decision is made to pick up an examination of Form 5500 for a prior year for which the statute of limitations has expired, the statute of limitations should be updated to alpha code "PP" immediately.

    6. If it is later determined that the use of alpha "PP" was inappropriate, a Form 3999 may be required as outlined in IRM 4.71.9.12.

    7. A copy of the AIMS print will be included in the case file (or RCCMS) to verify the date the statute was updated to alpha "PP."

  14. Alpha code "WW" , Failure to Provide Information with Respect to "Listed Transactions" , is used to indicate that, per IRC 6501(c)(10), the period for assessment of tax with respect to a "listed transaction" that the taxpayer failed to disclose as required under IRC 6011 will not expire before one year after the earlier of either the date the taxpayer discloses the transaction in accordance with prescribed procedures (see Rev. Proc. 2005-26, or subsequently published guidance) or the date a "material advisor" meets the requirements of IRC 6112 with respect to a request by the Secretary under IRC 6112 relating to the transaction.

    1. If neither the taxpayer nor the "material advisor" disclose the required information, the period of time for assessment of any tax with respect to the "listed transaction" is unlimited.

    2. Other exceptions to the normal statutory period for assessment of tax may also apply to the tax return in question and IRC 6501(c)(10) does not shorten any other applicable period for assessment, such as the general three-year period prescribed by IRC 6501(a).

    3. IRC 6707A(c)(2) defines a "listed transaction" as a transaction that is the same as, or substantially similar to, a transaction specifically identified by the Secretary as a tax avoidance transaction.

    4. IRC 6501(c)(10) should generally be relied upon to extend the period for assessment only in those instances when the normal three year statute for the has expired.

    5. The statute may be updated to alpha code "WW" when it has been determined that IRC 6501(c)(10) is applicable and the normal three-year assessment statute applicable to the entire return may be allowed to expire if: (1) a consent to extend the assessment statute for the entire return can not be obtained after timely and proper solicitation, (2) the case file is documented with adequate justification for letting the assessment statute applicable to the entire return expire in reliance on IRC 6501(c)(10), (3) written Area Counsel approval is obtained in advance of the normal three-year assessment statute expiration date, and (4) written Area Manager approval is obtained in advance of the normal three-year assessment statute expiration date.

      Note:

      Area Counsel's written approval must be maintained in the case file.

    6. In order to determine if the one-year period under IRC 6501(c)(10) has started to run, the examiner should consult Rev. Proc. 2005-26, or subsequently published guidance, to determine if the taxpayer or "material advisor" has complied with the requirements contained in the applicable published guidance.

    7. The statute is one year after the earlier of the date the taxpayer discloses the transaction, as discussed in the above-referenced revenue procedure, or the date that a "material advisor" meets the requirements of IRC 6112 with respect to a request by the Secretary under IRC 6112 relating to the transaction.

    8. The statute date determined under IRC 6501(c)(10) can be extended by consent agreement (Form 872) but the agent needs to bear in mind that consent agreements to extend the IRC 6501(c)(10) statute date only apply to the period for assessing the liability related to the "listed transaction" .

    9. The group manager will ensure that Form 895-EP is appropriately noted and initialed by the agent and the group manager.

    10. A copy of the AIMS print will be included in the case file (or RCCMS) to verify the date of the statute was updated to alpha code "WW" .

  15. Alpha code "XX" is used on RCCMS to designate that a return preparer penalty under IRC § 6694(b) may be assessed at any time.

    1. Alpha code "XX" should not be used to reflect an alpha code statute on AIMS.

    2. Return preparer penalty controls for penalties under IRC 6694(a) and IRC 6695 are to reflect a date three years after either the due date of the return (without regard to an extension of time to file) or the date the return or claim for refund with respect to which the penalty is assessed was filed, whichever is later.

    3. Alpha code "XX" can be used to designate that a return preparer penalty under IRC 6713 for preparer’s unauthorized disclosure or use of taxpayer information may be assessed at any time.

    4. Alpha code "XX" can also be used to designate that the penalties under IRC 6700 and IRC 6701 for promoting abusive tax shelters and aiding and abetting understatement of the tax liability, respectively, may be assessed at any time.

4.71.9.10  (07-29-2014)
EP P&R Managers Responsibilities and Procedures

  1. Managers, EP Special Review, EP Mandatory Review, ESSP and EP Classification are responsible for maintaining statute controls for returns under their jurisdiction. This will be accomplished by the following procedures.

    1. The statute control clerk or other designated employee will annotate the statute expiration date of all incoming returns on a case-tracking sheet.

    2. The manager or a designated individual will verify the statute of limitations date and initial the tracking sheet as appropriate.

    3. All cases received with less than 180 days on agreed cases or 365 days on unagreed cases should be assigned as soon as possible.

    4. The statute control file will be checked at least monthly and, where required, the reviewers will secure consents extending the statute and update AIMS and RCCMS on assigned cases.

4.71.9.11  (07-29-2014)
Procedures for Table 4.0

  1. Each month the EP AIMS Coordinator will forward AIMS Table 4.0 to all groups (including all EP Examinations Programs and Review sections).

  2. Managers should review Table 4.0, verify statutes and resolve all problems identified on the table.

4.71.9.11.1  (07-29-2014)
Table 4.0 Procedures for Group Managers

  1. Generally, every month the Table 4.0 will be received by the group, accompanied by instructions from the EP AIMS Coordinator outlining steps for working the table and returning it for verification.

  2. Upon receipt of Table 4.0, the cases listed therein should be checked against group statute control files and the returns or other return information, such as BMFOL, EMFOL, IMFOL or RTVUE, to ensure the current statute expiration dates are reflected on the table.

  3. When necessary, AIMS Form 5595, TE/GE Update should be used for updating AIMS data to reflect the correct statute expiration date.

  4. The table should otherwise be used as a check to ensure that proper statute control actions are taken.

  5. Actions needed should be taken immediately and resultant AIMS and RCCMS update actions made.

  6. Resolution of the Table 4.0 should be accomplished within 15 days of receipt.

  7. When review of Table 4.0 is complete, all statute dates verified and all problems resolved, the table should be forwarded to the Area Manager or Area Manager, EP Examinations Programs and Review as appropriate.

  8. A copy should also be forwarded to the EP AIMS Coordinator through the Manager, ESSP.

  9. The EP AIMS Coordinator should be contacted with any questions that arise regarding the working of Table 4.0.

4.71.9.11.2  (07-29-2014)
Table 4.0 Procedures for Manager, EP Examinations Special Support and Processing

  1. Upon receipt of worked AIMS Tables 4.0 from the groups, the Manager, EP Examinations Special Support and Processing will forward the tables to the EP AIMS Coordinator for processing.

  2. The EP AIMS Coordinator will:

    1. Analyze each table to ensure that proper and timely actions have been taken by the group managers.

    2. Perform additional IDRS research on cases closed from the group level for more than five weeks.

      IF the research shows that the case is THEN
      • closed (status 90), the Table 4.0 will be so annotated and no further action will be taken.
      • open, the group manager will be requested to forward copies of the group's Form 3210 to the AIMS Coordinator. These documents will be analyzed to determine if further action is warranted.
    3. Thirty days after the AIMS Tables 4.0 have been distributed to the groups, the AIMS Coordinator will provide a report to the Area Manager, EP Examinations Programs and Review which will identify any significant problems encountered and list those groups that did not return the group report.

4.71.9.12  (07-29-2014)
Barred Statute Reporting - Form 3999, Statute Expiration Report

  1. This section outlines responsibilities for EP managers, agents and other personnel for reporting barred statutes.

  2. Form 3999, Statute Expiration Report, is used to report barred statutes on returns requiring statute control. See IRM 4.71.9 Exhibit 19 at IRM 4.71 - Employee Plans Examination Exhibits.

  3. Form 3999 should be prepared for each taxpayer involved in returns assigned for examination and/or controlled on AIMS and/or RCCMS when the statutory period is reflected as expired.

  4. One of the primary uses of the Form 3999 is to identify potential systemic problems or issues and recommendations for corrective actions.

4.71.9.12.1  (07-29-2014)
Time Frames for Form 3999

  1. Within 10 calendar days of discovery of a potentially expired statute, a preliminary Form 3999 should be completed and forwarded through the appropriate Area Manager to the Area Manager, EP Examinations Programs and Review for submission to the Director, EP Examinations.

  2. A final Form 3999 can be prepared as the initial report, if all of the necessary information is available at the time of discovery.

  3. The final Form 3999, if not submitted as the initial report, should be prepared within 60 calendar days of the date of the preliminary report.

4.71.9.12.2  (07-29-2014)
Responsibility for Preparing Form 3999

  1. The individual discovering the potential statute expiration is responsible for preparing:

    1. the preliminary barred statute report, and

    2. a narrative of the facts and circumstances, with a time line, leading up to the potential statute expiration.

      Note:

      It should be noted that this does not mean that this person solely, if at all, was responsible for the expiration of the statute.

  2. The responsibility for preparing the final Form 3999 is with the manager of the function or Area having possession of the return with the potentially expired statute.

4.71.9.12.3  (07-29-2014)
Instructions for Preparing Form 3999

  1. Only Items 1 through 12 of Form 3999 are completed when a preliminary report is submitted. However, if all of the facts are known at the time of discovery and the 10 day time frame can be met, then a final report can be submitted in lieu of a preliminary report.

  2. A preliminary report should include a brief narrative of how the statute expired with a time line illustration of the processing of the case leading to the statute expiration.

  3. The following signatures are required for the preliminary Form 3999:

    1. The group/unit manager,

    2. The Area Manager or the Area Manager, EP Examinations Programs and Review, or the Manager, EP Mandatory Review (as applicable), and

    3. The Director, EP Examinations.

    Note:

    IF the statute was barred in a... THEN forward the preliminary report to the...
    • field group, Area Manager.
    • group under EP Examinations Programs and Review, Area Manager, EP Examinations Programs and Review.
  4. Make three copies of the completed preliminary report and distribute as follows:

    1. Place one copy for the case file.

    2. Send a copy to the Area Manager or Area Manager, EP Examinations Programs and Review (as applicable).

    3. Send a copy to the Manager, EP Mandatory Review.

  5. Send the original completed preliminary report to the Director, EP Examinations, routed through the Area Manager, EP Examinations Programs and Review.

4.71.9.12.4  (07-29-2014)
Instructions for the Final Form 3999

  1. The completion of most line items is self-explanatory. However, close attention should be given when completing the following line items.

    1. Item 12a: List the years or periods expired.

    2. Item 12b: List the date of statute expiration.

    3. Item 12c: List the amount of deficiency or over-assessment.

    4. Item 13: Provide information on the status and location of the return at the time of statute expiration. If it is not determinable where a case was on the date of expiration, specify the location of the return at date of discovery.

    5. Item 14: Provide an explanation of why the statute expired with appropriate comments reflected on the back of the form, or an attachment as necessary.

    6. Item 15: Provide corrective action taken or recommended to prevent recurrence of statute expiration. In the event disciplinary action is proposed, it should be explained in Item 15 without identifying the responsible employee. This will be the subject of a separate report.

      Note:

      A sample narrative might begin as follows: "No changes to procedures are recommended. If procedures in place had been properly followed, expiration would not have occurred."

  2. Also include the following information in the final report:

    1. The proposed disciplinary action or the reason why no disciplinary action is merited. Disciplinary action will be the subject of a separate memorandum, as an attachment to the Form 3999.

    2. Any change in the facts from date of discovery of the expired statute to the date of preparation of the final Form 3999 (if applicable).

    3. Narratives from other affected functions cited in the preliminary report (as applicable).

4.71.9.12.5  (07-29-2014)
Distribution of Completed Final Form 3999

  1. Once a final Form 3999 is completed, three copies and the original are to be distributed as follows:

    1. Send the original to the Director, EP Examinations, routed through the Area Manager, EP Examinations Programs and Review.

    2. Place a copy in the case file.

    3. Send a copy to the Area Manager or Area Manager, EP Examinations Programs and Review (as applicable).

    4. Send a copy to the Manager, EP Mandatory Review who will maintain copies for trend review.

4.71.9.13  (07-29-2014)
Resolving Disputes

  1. The Director, EP Examinations will resolve any disputes.


More Internal Revenue Manual