4.71.10  Form 990-T Processing

Manual Transmittal

April 07, 2014

Purpose

(1) This transmits revised IRM 4.71.10, Employee Plans Examination of Returns, Form 990-T Examination Procedures.

Background

IRM 4.71.10 provides guidance and information to assist agents in the identification of Unrelated Business Income (UBI) and gives procedures for examining and closing Form 990-T, Exempt Organization Business Income Tax Return, secured during the examination of a Form 5500 series return.

Material Changes

(1) This revision makes minor editorial corrections to the March 11, 2014, published version of IRM 4.71.10.

Effect on Other Documents

This supersedes IRM 4.71.10 dated March 11, 2014.

Audience

TE/GE Employee Plans

Effective Date

(04-07-2014)


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

4.71.10.1  (04-07-2014)
Overview of Form 990-T Examinations

  1. This section of the IRM provides guidance and information to assist agents in the identification of Unrelated Business Income (UBI) and gives procedures for examining and closing Form 990-T, Exempt Organization Business Income Tax Return, secured during the examination of a Form 5500 series return.

  2. A Form 990-T is secured during the examination of a Form 5500 series return when it is discovered that the trust assets have produced income that is taxable under IRC 511 as UBI.

  3. A Form 990-T is secured to report UBI of a trust exempt under IRC 501(a) if the gross income from all unrelated businesses is $1,000 or more.

  4. Unrelated debt-financed income as defined in IRC 514 can be deemed to be UBI and subject to taxation. What constitutes "debt-financed income" is discussed in IRM 4.71.10.2.4.

  5. Some examples of an exempt trust engaging in UBI are:

    1. Investing as a limited partner in a partnership carrying on an unrelated trade or business.

    2. Securities purchased on margin.

    3. Investing in a partnership set up to invest in securities.

    4. When an S Corporation maintains an ESOP and the ESOP fails IRC 409(p), Schedule K-1 income flowing to the ESOP is UBI.

4.71.10.2  (04-07-2014)
Unrelated Business Income

  1. IRC 512(a)(1) defines UBI as the gross income derived from any unrelated trade or business regularly carried on, less the deductions which are directly connected with the carrying on of the trade or business.

  2. IRC 513(a) defines an unrelated trade or business as any trade or business, the conduct of which is not substantially related to the exercise of the purpose for the trust’s exemption under IRC 501(a).

  3. IRC 513(b) defines an unrelated trade or business for purposes of a trust under IRC 501(a) to be any trade or business regularly carried on by such trust or by a partnership of which the trust is a member.

4.71.10.2.1  (04-07-2014)
Examples of an Unrelated Trade or Business

  1. The determination of a trade or business is made on a facts and circumstances basis. The regulations for IRC 513 provide examples and guidance on what constitutes a trade or business.

  2. Some examples of an unrelated trade or business are:

    1. An organization involved in real estate construction and development invests some of its retirement plan trust assets in land adjacent or near their own development projects. Subsequent to the subdivision and improvement of the land it is sold with the belief that any gains will not be subject to taxation. If these sales are carried on in a regular and continuous manner, the trust could be considered to be in the real estate business and therefore subject to UBI taxation under IRC 511.

      Note:

      To discover such activities, review the books and records of the trust, any real estate closing statements, deeds or public records.

    2. Rental of personal property (other than personal property leased with real property) is another example of UBI. The leasing of automobiles, office machines, computers, signs and vending machines are some examples of personal property that would constitute UBI.

      Note:

      Any personal property (especially vending machines) in the trust would be an indication of UBI and should be carefully reviewed.

    3. The trust could invest in real estate and use the land for farming, but income from the farmed land would be considered UBI. Such income is often part of the "other income" as shown on the 5500 return.

      Note:

      All "other income" of a trust should be fully analyzed.

4.71.10.2.2  (04-07-2014)
Exceptions to UBI for Exempt Trusts

  1. IRC 512(b) provides exceptions and limitations on UBI to exempt qualified retirement trusts.

  2. Some examples of exceptions to UBI are:

    1. Dividends, interest and annuities. All dividends, interest and annuities from regularly carried on trade or business and all deductions connected are not unrelated business income.

    2. Royalties. An example of an exempt royalty would be if a trust owns real estate and another person drills for oil on the site. The other person incurs all of the costs for the drilling and excavation and pays a royalty to the trust. Such royalties would not be UBI to the trust. However, if the trust had paid 50% of the development cost for a 50% ownership in the regularly carried on trade or business, the income would be deemed UBI to the trust.

    3. Gains or losses from the sale of property. Gains and losses from the sale, exchange, or disposition of property are generally not unrelated business income to the trust. This exception does not apply to stock in trade or other property of a kind which would be includible in inventory if on hand at the close of the taxable year, or property held primarily for sale to customers in the ordinary course of the trade or business.

    4. Rents. Income derived from the rental of real property, as part of a regularly carried on trade or business, is excluded from UBI to the trust. Rental income from personal property is subject to UBI. When both real and personal property are rented there are specific rules that apply. See Reg. 1.512(b)-1(c).

    5. Net operating losses. The net operating loss deduction provided in IRC 172 is allowed as a deduction when calculating unrelated business taxable income.

4.71.10.2.3  (04-07-2014)
Commingled Investments

  1. Many qualified retirement trusts invest in commingled investments such as partnerships, joint ventures, pooled trusts, common trusts, real estate investment trusts (REIT) or some other type of combined investment. This gives the plan sponsor an opportunity to diversify the trust assets.

  2. These types of investments may or may not be subject to UBI depending on the facts and circumstances.

  3. Partnerships. Trusts can invest as either limited partners or general partners. The income derived by the trust is deemed to be of the same character and from the same source as if the trust, rather than the partnership, is the original recipient of the income. Therefore, a trust’s share of any partnership income is treated by the trust as if it is carrying on the trade or business of the partnership. The partnership income passes through the partnership to the trust. This applies to limited partnerships as well as general partnerships.

    1. For example, assume the trust is a partner in a partnership that specializes in the investment of real estate investment trusts (REITs). The partnership's business is to research and then buy shares of REITs. Therefore, the income to the trust derived from the investment in the partnership is deemed to be income from an investment in a REIT. As noted below, a trust’s investment income from a REIT is not considered to be UBI. In this example, any income the trust receives from the partnership would not be UBI.

    2. A taxpayer may argue that an investment in a limited partnership is a passive investment and that any income would not be UBI since the trust has no active involvement in the management of the partnership. Rev. Rul. 79-222 explains that an investment by a trust in a limited partnership carrying on an unrelated trade or business will result in UBI.

    3. Additional information on partnership investments can be found in Rev. Rul. 74-197 and Reg. 1.512(c)-1.

  4. Pooled Trusts. Although a pooled trust is exempt from taxation, it may be subject to UBI. The tax is imposed at the trust level and is not taxed again when the UBI is distributed to the participating trust.

  5. Common Trusts. These are essentially the same as pooled trusts except that Common Trusts must have a bank as the trustee.

  6. Real Estate Investment Trusts (REITs). Rev. Rul. 66-106 and Reg. 1.856-1(e) provide that a trust's investment in a REIT is essentially the same as an investment in stock of a corporation. Therefore, any distributions from the profits or earnings from a REIT are deemed to be treated as dividends. Dividends are not treated as UBI to the trust. Therefore, income received by a trust from a REIT is not considered to be UBI.

4.71.10.2.4  (04-07-2014)
Unrelated Debt-Financed Income

  1. Another form of UBI is income derived from debt-financed property. IRC 514(b)(1) defines debt-financed property as any property held to produce income and on which there is acquisition indebtedness at any time during the year.

  2. Examples of exclusions from debt-financed income:

    1. Debt-financed income that has already been taxed as a regularly carried on unrelated trade or business is not UBI. This is to prevent double taxation to the trust.

    2. Debt-financed income related to the use of an Exempt Loan made to an ESOP is not UBI. Per IRC 514(b)(1)(A)(i), any income derived from property which is substantially related to the purpose of the trust’s exemption would not be debt-financed income. Rev. Rul. 79-122 clarifies the exclusion of ESOP plans from being subject to debt-financed income.

    3. Acquisition indebtedness incurred by a qualified plan in acquiring or improving any real property is not UBI, provided that all of the conditions of IRC 514(c)(9) are satisfied. Refer to the conditions contained in IRC 514(c)(9) to see if this exemption applies.

  3. IRC 514(c)(1) defines acquisition indebtedness as the outstanding amount of:

    1. The indebtedness incurred by the trust in acquiring or improving property;

    2. The indebtedness incurred before the acquisition or improvement of property if such indebtedness would not have been incurred but for such acquisition or improvement; and

    3. The indebtedness incurred after the acquisition or improvement of property if such indebtedness would not have been incurred but for such acquisition or improvement and the incurrence of such indebtedness was reasonably foreseeable at the time of such acquisition or improvement.

  4. Income from stocks purchased on margin would be debt-financed income.

  5. Any acquisition indebtedness incurred by a partnership flows through to the exempt trust the same way unrelated business taxable income flows through.

  6. See Reg. 1.514(a)-1 and Schedule E of Form 990-T for guidance in calculating debt-financed income.

4.71.10.3  (04-07-2014)
Statute of Limitations for Forms 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.

  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).

  5. If the trust reported UBI on the Form 5500 series return, 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 5500 series return was filed. See IRC 6501(e).

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

  7. If the trust files Form 990-T and the amount of omitted gross income from unrelated business activity is greater then 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.

  8. See IRM 4.71.9.6.3, Securing Consents for Form 990-T, for guidance on completing Form 872, Consent to Extend the Time to Assess Tax, to extend the statute of limitations for Form 990-T.

4.71.10.4  (04-07-2014)
General Procedures for Form 990-T Examinations

  1. Follow the usual examination techniques and guidelines as with any other return examined.

    1. Secure and review source documents substantiating the applicability of UBI tax.

    2. Set up a separate folder for each Form 990-T to be examined.

    3. Utilize Form 5772, EP Workpaper Summary, and Form 5773, EP Workpaper Summary Continuation Sheet, (or equivalent) to reflect documentation of the examination issues and conclusions.

  2. Once adequate documentation has been gathered and the determination has been made to pursue a tax issue, the impacted taxpayer must be notified in writing of the Form 990-T examination.

    1. Issue an individually designed letter (i.e., a modified Letter 1346 or Letter 1474) with an attached Revenue Agent Report (RAR) containing pertinent facts, law, government position, and UBI tax calculations (also include penalty calculations if applicable).

    2. The letter will solicit the filing of Forms 990-T for all years in which returns are due (provided there is sufficient time remaining on the statute of limitations).

    3. If additional tax is being assessed on a year when Form 990-T was previously filed (or a substitute Form 990-T was processed), Form 870-EP, Waiver of Restrictions on Assessment & Collection of Deficiency in Tax & Acceptance of Overassessment, can be used to secure agreement on the additional assessment of tax. See IRM 4.71.10 Exhibit 1 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 870-EP.

      Note:

      For purposes of UBI in a trust, Form 870-EP is signed by a trustee of the trust. Therefore, in the signature section of Form 870-EP, "Corporate Name" and "Corporate Officer(s)," should be revised to "Trust Name" and "Trustee" , respectively.

    4. Payment of UBI tax with applicable penalties should be solicited in order to stop interest from accruing.

    5. Send Pub 1, Your Rights as a Taxpayer, with the letter if not previously given to the taxpayer.

    6. Send a copy of the letter to any authorized power of attorney (POA).

  3. Forms 990-T filed for UBI generated by trust assets should be filed by the trust using the trust Taxpayer Identification Number (TIN), not the plan sponsor's EIN. If the trust does not have a TIN, have the taxpayer complete and file a Form SS-4, Application for Employer Identification Number, to obtain one for the trust. See IRM 4.71.10.4.1 below.

    Note:

    A Form 990-T sent to Ogden with an EIN that is used for any other purpose than for the filing of Form 990-T for the trust will not process at the Service Campus. The return will reject and a new trust EIN will have to be assigned causing a delay in the processing of the Form 990-T.

  4. Verify the trust EIN entity is established on the BMF.

    1. An entity should automatically establish when an EIN is assigned to the trust.

    2. Solicit an INOLES print to determine if a trust entity is established on AIMS.

  5. In general, the same procedures used to process a Form 5330, Return of Excise Taxes Related to Employee Benefit Plans, will be utilized to process Form 990-T.

    1. Effective June 25, 2013, establishment of Forms 990-T on Audit Information Management System (AIMS) and Reporting Compliance Case Management System (RCCMS) will no longer take place at the group level.

    2. Instead, Forms 990-T will be established on AIMS and RCCMS by EP Classification after filed returns or substitute for returns (SFR) have been processed by the Ogden Service Campus and the return has been posted to the Business Master File (BMF) as evidenced by a transaction code (TC) 150.

    3. When Form 990-T is secured, make a copy for the file and mail the original to the Ogden Service Campus.

    4. Prepare Form 5599, TE/GE Examined Closing Record. Form 5599 is the closing document used to close Forms 990-T established on AIMS and RCCMS.

    5. Save a copy of Forms 5599, 5772, 5773, all supporting workpapers and all other relevant documents in RCCMS in the RCCMS Office Documents folder using the RCCMS Naming Convention. See IRM 4.71.12.3(5), Case File Assembly Guidelines.

    6. The closing letter to be used for an agreed Form 990-T exam is Letter 2085-A. The letter will be prepared by the agent and mailed to the taxpayer by the designated person in the group.

    7. Agreed Form 990-T examinations cannot be closed off of AIMS until the return is processed and posted by the Ogden Service Campus (which is indicated by a 150 transaction code) and the exam is fully established on RCCMS and AIMS.

    8. Before closing the case to Examinations Special Support and Processing (ESSP) in Brooklyn, update the status code to 51 on RCCMS and AIMS.

  6. Before closing an unagreed case to Mandatory Review the agent should:

    1. Ensure that the trust has its own EIN.

      Note:

      The Service Campus will not process a Form 990-T with the employer's EIN.

    2. Ensure that an entity module is established on the BMF.

    3. Prepare a Substitute for Return and mail it to the Ogden Service Campus if the taxpayer refuses to file a delinquent return.

    4. Ensure that the Form 990-T exam is fully established on RCCMS and AIMS.

    5. Prepare portions of the 30-Day Letter package, including a RAR. A copy of the RAR and draft 30 Day Letter should be saved in the RCCMS Office Documents folder.

      Note:

      If the RAR and draft 30 Day Letter are saved in the RCCMS Office Documents folder, it is no longer necessary to include those documents on a disk in the case file

      .

    6. Complete Form 5772 and Form 5773 (or equivalent) to the extent possible.

    7. Complete Form 5599.

    8. Save a copy of Form 5599, Form 5772, Form 5773, all supporting workpapers and all other relevant documents in RCCMS in the RCCMS Office Documents folder using the RCCMS Naming Convention. See IRM 4.71.12.4.

    9. Close the Form 990-T to Mandatory Review on RCCMS and AIMS, updating the AIMS status code to 20.

      Note:

      Close the related Form 5500 exam to Mandatory Review as well, even if it is agreed. If the related Form 5500 is agreed, prepare the closing letter, but leave it undated in the case file. The Form 5500 closing letter will be mailed out by Mandatory Review.

      Note:

      See IRM 4.71.10.5 and the subsections thereunder for unagreed procedures

4.71.10.4.1  (04-07-2014)
Obtaining a Trust EIN

  1. Solicit the trust EIN from the plan sponsor.

    Note:

    If the trust does not have an EIN, the plan sponsor must complete Form SS-4 and file or fax it to the appropriate IRS office listed on the Form SS-4 instructions.

  2. If the plan sponsor provides a trust EIN, run a BMFOLI print to make sure the EIN is not being utilized to file returns other than trust returns (e.g., Form 990-T or Form 1041).

    Note:

    A Form 990-T sent to Ogden with an EIN that is used for any other purpose than for the filing of Form 990-T for the trust will not process at the Service Campus. The return will reject and a new trust EIN will have to be assigned causing a delay in the processing of the Form 990-T.

  3. If the trust does not have an EIN and the plan sponsor will not obtain one, the agent should obtain one by faxing Form 4442 to the EO Entity Unit at Ogden Campus. The fax number is 801-620-6236. See IRM 4.71.10 Exhibit 8 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 4442.

  4. Obtaining a new EIN for the trust in a manner described in paragraph 3 will automatically establish an entity module. There is no need to prepare Form 2363, Master File Entity Change, or Form 4442, Inquiry Referral, to establish an entity.

4.71.10.4.2  (04-07-2014)
Establishing Forms 990-T on RCCMS and AIMS

  1. Effective June 25, 2013, establishment of Forms 990-T on AIMS and RCCMS will no longer take place at the group level.

  2. Instead, Forms 990-T will be established on AIMS and RCCMS by EP Classification after filed returns or substitute for returns (SFR) have been processed by the Ogden Service Campus and the return has been posted to the Business Master File (BMF) as evidenced by a transaction code (TC) 150.

  3. Once a delinquent Form 990-T return is received from the taxpayer, the case will be processed and established on RCCMS and AIMS in accordance with IRM 4.71.10.4.3.

  4. At the first indication that a case is unagreed (e.g., the taxpayer refuses to properly file a Form 990-T that is due) the agent will process substitute for return(s) (SFR) and establish the returns on RCCMS and AIMS in accordance with IRM 4.71.10.5.3.

4.71.10.4.3  (04-07-2014)
Processing Forms 990-T Received from the Taxpayer

  1. Date stamp all delinquent Forms 990-T with the IRS received date as soon as possible after receipt from the taxpayer.

  2. Verify the accuracy of the return:

    1. Ensure that the EIN listed on the return is a valid EIN for the trust. Obtain an INOLES print to make sure the EIN is for the trust and that the trust entity is present on AIMS.

      Note:

      A Form 990-T sent to Ogden with an EIN that is used for any other purpose than for the filing of Form 990-T for the trust will not process at the Service Campus. The return will reject and a new trust EIN will have to be assigned causing a delay in the processing of the Form 990-T.

    2. Ensure that the trust year matches the plan year.

      Note:

      Unlike Forms 1041, when filing a Form 990-T, trust years do not revert to a calendar year when the plan year is not on a calendar year.

    3. Ensure that the correct amount of tax is reported on the return.

    4. Ensure that the return is signed by the taxpayer.

    5. Ensure that the correct tax year is listed.

  3. Filing of original tax returns via fax will only be allowed as part of a return perfection process (e.g., securing missing schedule or missing signature) initiated by the IRS or in the post-filing/non-filing activities. Tax returns can be received via fax as part of return perfection even if a taxpayer’s signature is required since Chief Counsel has advised that in circumstances where contact with the taxpayer has been made and documented, faxed signatures are legally sufficient.

  4. If payment is received, checks must be processed in accordance with GAO recommendations:

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

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

    3. After preparation of Form 3244-A, Payment Posting Voucher - Examination, and Form 3210, Document Transmittal, a group manager must review the Form 3210, compare it to the Form 3244-A and sign the Form 3210. The person who prepares the Form 3244-A cannot be the same person who signs the Form 3210.

    4. By the end of the next business day after receipt, send the check along with the Form 990-T package, express mail (next day) to the Ogden Submission Processing Campus.

    5. If the check cannot be mailed to Ogden the same day it is received, it must be secured in a locked file overnight.

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

    7. If the acknowledgement copy of Form 3210 is not received back from the Ogden Service Campus within 10 days after mailing, the Service Campus must be contacted to follow-up receipt of the check. These actions must be documented in the group logbook.

  5. If no payment is received, process the Form 990-T package as soon as administratively possible (preferably within three business days).

  6. Write in bold red letters on the top margin of the original return: "DELINQUENT RETURN SECURED BY TE/GE EMPLOYEE PLANS." Reminder: Leave room in the upper right corner for the DLN to be entered by the Service Campus.

  7. The prepared package forwarded to the Service Campus will contain the following:

    1. Form 3210.

    2. Any payments received (e.g., check) with Form 3244-A (placed in a separate addressed envelope per paragraph (4) f) above). See IRM 4.71.10 Exhibit 5 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 3244-A.

    3. Form 13133, Expedite Processing Cycle. See IRM 4.71.10 Exhibit 3 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 13133.

      Note:

      If penalties are not to be assessed, the agent must mark Form 13133 accordingly. Penalties will automatically be assessed by the Ogden Campus unless specific instructions are provided otherwise.

    4. Form 3198-A, TE/GE Special Handling Notice. See IRM 4.71.10 Exhibit 4 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 3198-A.

      Note:

      Instructions regarding the assessment or non-assessment or IRC 6651(a)(1) and IRC 6651(a)(2) penalties should be written in the "Other Instructions" section on the bottom of the form. Normally penalties will be assessed by the Ogden Campus unless specific instructions are provided otherwise.

    5. Original Form 990-T.

    Note:

    Fasten items b) through e) in corresponding order with the payment on top and the return on the bottom.

  8. Mail Form 990-T packages without remittance to:
    IRS
    1973 N. Rulon White Blvd.
    Mail Stop 6052
    Ogden, UT 84404

  9. Mail Form 990-T packages with remittance less than $100,000 to:
    IRS
    Attn.: Teller Unit
    1973 N. Rulon White Blvd.
    Mail Stop 1999
    Ogden, UT 84404

  10. If remittance of $100,000 or more is received, the Form 990-T package should be mailed to Mail Stop 2003 instead of Mail Stop 1999.

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

  12. Before mailing the Form 990-T package, a copy of the entire package should be made for the case file.

  13. Annotate in bold red letters on the top of the copy: "COPY OF DELINQUENT RETURN SECURED BY TE/GE: EP—ORIGINAL RETURN SENT TO OGDEN SC ON 00/00/00" (list the date mailed).

  14. The agent will periodically request a BMFOLT print until the return posts. When the return posts, a 150 transaction code (TC 150) will be reflected on the account.

    Note:

    It normally takes four to eight weeks for the Ogden Campus to process a return once it is received.

  15. When the return posts, the agent will complete the Related or Subsequent Year Form 5500, 5330 and 990-T Request Form (the Form) and forward it to their manager. See IRM 4.71.10 Exhibit 2 at IRM 4.71 - Employee Plans Examination Exhibits for an example of this form.

  16. The manager will send the approved Form to EP Classification via the EP Classification mailbox. The Classification E-mail address is *TE/GE-EP-Classification.

  17. Once the Form is received, EP Classification will process the request.

    Note:

    The AIMS account and RCCMS activity will be created within a few days in the Group’s organization code.

4.71.10.4.4  (04-07-2014)
Closing Agreed Forms 990-T

  1. Forms 990-T examinations are considered agreed when:

    1. Form 990-T is secured from the taxpayer reflecting the correct amount of tax, or

    2. A signed Form 870-EP is secured reflecting an agreed upon change to the tax previously reflected on a filed Form 990-T return, or

    3. The agent determines that no additional tax is due on a previously filed Form 990-T return that they examined.

      Note:

      When working a claim the procedures in IRM 4.71.8 should be followed.

  2. Prepare Form 5772 and Form 5773 (or its equivalent) to document audit procedures and findings. Save a copy of these forms in the RCCMS Office Documents folder using the RCCMS Naming Convention. See IRM 4.71.12.3(5).

  3. Complete the closing tabs as needed within the RCCMS record.

  4. Generate a closing letter covering all Form 990-T years examined.

    1. Letter 2085-A should be used when the examination results in no change to the tax reported on a filed Form 990-T. See IRM 4.71.10 Exhibit 7 at IRM 4.71 - Employee Plans Examination Exhibits for an example.

    2. Letter 2087-A should be used when a signed Form 870-EP is secured reflecting agreed upon change to the tax previously reflected on a filed Form 990-T return.

    3. If the AIMS disposal code is 03 or 06, the closing letter will be mailed out by the closing unit. If the AIMS disposal code is 02, the closing letter will be mailed out by the group after the group manager approves the case for closing.

  5. The following disposal codes should be used:

    Disposal Codes Conditions
    AIMS 02 (RCCMS = 107) If a previously filed return is examined and there is no change to the tax liability or a timely filed return is secured and there is no change to the tax liability.
    AIMS 03 (RCCMS = 102) The tax has been corrected on a previously filed return and the taxpayer agreed to the changes by signing a Form 870-EP.
    AIMS 06 (RCCMS = 208) A delinquent return was secured.

  6. Enter tax reported on the Form 990-T, secured during the examination, on line 414 of Form 5599 used to close the Form 990-T examination.

  7. Prepare Form 5599 in accordance with IRM 4.71.10.4.5 and save it in the RCCMS Office Documents folder.

  8. The agreed Form 990-T examination case file(s) and any related Form 5500 series returns may be closed to ESSP in Brooklyn when the RCCMS files are received from Classification and the return has fully posted on AIMS.

    Note:

    The case must be fully established on RCCMS and AIMS before the case is closed to ESSP.

  9. For "agreed" Forms 990-T, the following paper documents must be in individual folders for each year (red folder if less than 180 days remain on the statute of limitations) with a completed Form 10329, Transmittal Sheet-Related Cases, stapled on front:

    1. Form 895-EP, Notice of Statue Expiration (if applicable),

    2. Copy of all Form 990-T packages mailed to the Ogden Campus as detailed in IRM 4.71.10.4.3,

    3. Form 872 (if applicable),

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

    5. Form 870-EP (if applicable),

    6. Form 5599,

    7. Closing letter(s) (to be mailed by the closing unit),

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

    9. A copy of Form 3244-A and a copy of the check if payment is received with Form 870-EP.

      Note:

      If payment is received with a delinquent Form 990-T, Form 3244-A and a copy of the check will be included as part of the package in paragraph 9b.

  10. If the case is closed with less than 180 days left on the statute of limitations, the paper case file must be placed in a red folder.

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

  12. Update the status code to 51 on RCCMS and AIMS when it closes from the group.

  13. Close all agreed Forms 990-T to Support Processing on RCCMS and mail the case file to:

    Internal Revenue Service
    TEGE: ESSP
    2 Metrotech Center
    100 Myrtle Avenue
    Sixth Floor
    Brooklyn, NY 11201

4.71.10.4.5  (04-07-2014)
Preparation of Form 5599 for Agreed Form 990-T Exams

  1. Form 5599 is the closing form that is required to be completed when closing a Form 990-T.

  2. The line items will be completed as noted. These fields will also be completed within the RCCMS activity.

    1. P7-18: Enter the TIN.

    2. P21-22: The MFT is 34.

    3. P24-29: Enter the tax period.

    4. P31-34: Enter the name control.

    5. C: Enter the name of the taxpayer.

    6. Item 12 – Tax Liability Adjustment: Enter a transaction code of 300 and $0 if no additional tax is being assessed above what is reflected on the return secured by the agent. If additional tax is being assessed above what was reported on a previously filed Form 990-T by utilization of Form 870-EP, enter a transaction code of 300 and the additional amount of tax being assessed.

      Note:

      If you previously forwarded an agreed delinquent return that the taxpayer voluntarily filed with you to the Ogden Service Campus, the tax assessment would have been made at the Service Campus when they processed the return you sent them. In that case, do not reflect an additional tax as being due in Item 12 to avoid a double assessment.

    7. Item 12 – Penalties (+): If Form 870-EP is signed by the taxpayer and the agent wants penalties to be assessed, enter transaction code 160 and the amount of penalties that are being assessed. If a delinquent return is secured and the agent wants penalties to be assessed, penalties will be assessed by Ogden Service Campus when the delinquent return is processed, so no penalties should be listed on Form 5599 for a secured delinquent return.

      Note:

      If a delinquent Form 990-T is secured and forwarded to Ogden, the Service Campus will assess penalties when the return is processed unless the agent provides instructions to the contrary in the "Other Instructions" section of the Form 3198-A that accompanies the delinquent return mailed to the Service Campus.

    8. Item 12 – Penalties (-): If penalties on a secured return are assessed by mistake by the Service Campus, they can be abated on Form 5599 by entering, on this line, transaction code 161 and the dollar amount penalties are to be decreased and by entering transaction code 300 and $0 on the Tax Liability Adjustment line (item 12 - Tax Liability Adjustment).

    9. Item 13: Enter the applicable disposal code as follows:

      Disposal Codes Exam Outcome
      AIMS 02 (RCCMS =107) No change
      AIMS 03 (RCCMS = 102) Agreed tax change
      AIMS 06 (RCCMS = 208) Delinquent return secured
      AIMS 34 (RCCMS =103) Claims allowed in full (surveyed)

      Note:

      See Document 6476, Employee Plans Systems Codes, for definitions. Do not use AIMS disposal code 12 (RCCMS = 202) or AIMS disposal code 15 (RCCMS = 106) to close Forms 990-T.

    10. Item 14: If the statute of limitations has been extended, enter the statute expiration date.

    11. Item 15: This item will be left blank if the dollar amount in item 12 is $0. If line 12 contains a dollar amount (i.e., additional tax is being assessed on a previously filed return), then reference number 886 should be listed here with the additional amount of tax being assessed (additional tax being assessed is listed in both items 12 and 15). If accuracy related penalties are being assessed, list reference number 680 and the penalty amount.

    12. Item 28: Enter the agent’s time on the case.

    13. Item 30: Enter the technique code: 4 – Field exam; 2 – OCEP.

    14. Item 31: Enter the agent’s grade.

    15. Item 32: Enter the grade of the case in the blocks from left to right as two digits (i.e., Grade 9= 09).

    16. Item 33: Enter the agent’s last name; leave a space and then first initial.

    17. Item 37: Enter the delinquent return code. If there is only one delinquent return, enter a "T" . If there is more than one delinquent return, enter a "T" in the latest year and an "R" in all prior years.

    18. Item 40: Enter the project code if there is one. If not enter 0000.

    19. Item 42: Enter the ARDI Code, if applicable.

    20. Item 50: Enter the agent’s group code.

    21. Item 414: For delinquent returns, enter the amount of tax assessed for the year.

      Note:

      Make sure the box under item 50 on page one of the form is checked if an amount is entered in item 414.

  3. Save a copy of Form in the RCCMS Office Documents folder using the RCCMS Naming Convention.

  4. See IRM 4.71.10 Exhibit 6 at IRM 4.71 - Employee Plans Examination Exhibits for an example of a completed Form 5599 for an agreed Form 990-T exam with tax that is paid.

4.71.10.4.6  (04-07-2014)
Amended 990-T Returns

  1. Previously filed Forms 990-T returns can be amended two ways:

    1. Filing an amended Form 990-T. Write "Amended Return Secured by TEGE Employee Plans" at the top of the return.

    2. Filing Form 870-EP (See IRM 4.71.10 Exhibit 1 at IRM 4.71 - Employee Plans Examination Exhibits for an example).

  2. If an amended Form 990-T is received, process the return in accordance with the procedures listed in IRM 4.71.10.4.3 above with the exception that the words "delinquent return" should be substituted with the words "amended return" .

  3. If an executed Form 870-EP is received by the agent:

    1. The original Form 870-EP will remain in the file. Do not send a copy to the Service Campus

    2. Tax is assessed by Support Processing when the case is closed from Form 5599 when the additional tax is listed in item 12 (Tax Liability Adjustment) with a code of 300. Additional penalties should be listed in item 12 (Penalties) with a code of 160.

    3. If payment is received, Form 3244-A should be prepared in accordance with IRM 4.71.10 Exhibit 5 at IRM 4.71 - Employee Plans Examination Exhibits . Send Form 3244-A, along with the check and Form 3210 to the applicable address listed in paragraphs (8), (9), or (10) of IRM 4.71.10.4.3 above.

    4. Otherwise, the case should be processed in accordance with the procedures listed in IRM 4.71.10.4.3 above.

  4. Forms 870-EP reflecting tax of $250,000 or less can be accepted by fax if taxpayer contact has been made and the case history documents the date of contact and the desire of the taxpayer to submit the consent by fax. Consents to assess tax in excess of $250,000 should be secured with original signatures that are delivered in person or by mail.

4.71.10.5  (04-07-2014)
Unagreed Cases

  1. "Unagreed" cases are those cases in which the taxpayer disagrees with the agent’s position, or agrees only in part. The case is unagreed if any, or all, of the following conditions exist:

    1. The amount of initial tax shown on the return is in dispute.

    2. The taxpayer refuses to file a delinquent Form 990-T or sign Form 870-EP.

  2. At the first indication that a case is unagreed, the agent should consult his/her group manager. Discussions with the group manager will be noted on the Form 5464, Case Chronology Record (CCR).

  3. The agent will use the CCR to clearly reflect case activities and contacts with the taxpayer/representative.

  4. If the taxpayer refuses to file a delinquent Form 990-T, a substitute for return package will be prepared by the agent. See IRM 4.71.10.5.3.

  5. The agent will establish unagreed Forms 990-T on RCCMS and AIMS in the same manner as agreed returns.

  6. The procedures set forth in IRM 4.71.10.4.1 must be followed to obtain an EIN for the trust if the trust does not already have an EIN.

  7. When there is an unagreed change to the tax liability, the agent will prepare certain portions of the 30-Day Letter package that will be issued by Mandatory Review. See IRM 4.71.10.5.1 for instructions on what to prepare.

    1. The agent will print a hard copy of the agent’s portion of the 30-Day Letter package and include in the case file prior to closing to Mandatory Review.

    2. All items in the agent’s portion of the 30-Day Letter package must be copied into RCCMS. This includes the RAR and all tax computations.

    3. Mandatory Review will complete the rest of the 30-Day Letter package upon receipt of the case from the group.

  8. Prior to closing an unagreed case, the agent will inform the taxpayer and/or representative of the reasons for the Service’s position by:

    1. Providing a written explanation of the basis of the proposed adjustments and citing the provisions of the law, regulations, published rulings, United States Tax Court and other court decisions on which the conclusions are based.

      Note:

      An effective way to share potential adjustment information is to generate a draft RAR as described below in IRM 4.71.10.5.2 and mail it to the taxpayer and/or representative utilizing a request for additional information cover letter. Label this preliminary RAR as a "DRAFT RAR" in the top margin of the first page. Include language in your follow-up correspondence such as, "Based on the information provided to date, it appears the issues reflected in the attached draft RAR are present. Please provide any additional information that may help to clarify or resolve a potential issue within xx days."

    2. Verbally explaining the issues either by telephone or through an arranged face to face meeting.

  9. If no agreement is reached, the agent will:

    1. Inform the taxpayer/representative that the case is being closed unagreed to EP Mandatory Review.

    2. Explain the appeals process to the taxpayer or POA. See Pub 1020, Appeal Procedures EP Examinations.

    3. Review the case file for completeness and proper assembly.

    4. Flag the file for Mandatory Review using Form 3198-A, which is attached to the outside of the case file.

  10. As is the requirement for all exam cases, Form 5772, Form 5773 (or equivalent) and other relevant workpapers must be prepared.

  11. When closing a case unagreed, Form 5599 should be prepared in accordance with IRM 4.71.10.4.5 with these exceptions:

    1. The disposal code will be left blank on Form 5599, but use disposal code 601 on RCCMS.

    2. No entry will be made in item 12 of Form 5599.

    3. Enter Appeals Office Code 121 in RCCMS and in item 16 of Form 5599.

    4. Enter the tax and failure to file penalties in item 18 of Form 5599 and on the Unagreed Amount line in tab 3 in the Closing Records tab in RCCMS.

  12. Close all unagreed Forms 990-T and related examinations to Mandatory Review on RCCMS and mail the case file to:
    IRS EP Mandatory Review
    801 Broadway
    Room 397, MDP 13
    Nashville, TN 37203

  13. Prepare Form 5595, TE/GE Update, (or equivalent group specific update form) and update the case to status 20 on RCCMS and AIMS before closing the case to Mandatory Review.

  14. All unagreed cases require a full hard copy of all workpapers, forms, letters, etc. assembled in accordance with IRM 4.71.12.

  15. All prepared workpapers, forms, and letters, should be named using the RCCMS Naming Convention and saved in the RCCMS Office Documents folder.

    Note:

    It is not necessary to save files on a CD for the case file if the files are saved in RCCMS.

4.71.10.5.1  (04-07-2014)
30-Day Letter Procedures

  1. 30-Day Letters are used to furnish taxpayers a copy of the final examination report and advise them of their appeals rights when they do not agree with the results of an examination. Refer to Reg. 601.105(d) for legal authority and additional explanation.

  2. The 30-Day Letter package consists of the following items:

    1. Letter 2005-A, which will be generated by Mandatory Review.

    2. Agent generated RAR, which is used to support the assertion of taxes and penalties. IRM 4.71.10.5.2

    3. Agent generated Form 870-EP, serves as a delinquent return in the event the taxpayer decides not to protest the preliminary notice and agrees to the assessment.

    4. Pub 1020, which will be sent by Mandatory Review.

    5. Pub 1, which will be sent by Mandatory Review.

    6. Pub 594, The IRS Collection Process, which will be sent by Mandatory Review.

4.71.10.5.2  (04-07-2014)
Revenue Agent Report (RAR)

  1. The RAR can be prepared on Form 886-A, Explanation of Items.

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

    1. Issue(s)– The issue will be clearly stated. For example, the issue might be stated as follows: "Whether the XYZ Pension Trust has unrelated business taxable income under Internal Revenue Code (IRC) 512 for the taxable years ending December 31, 2008, 2009, and 2010?"

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

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

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

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

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

  3. Mandatory Review may be contacted for assistance in writing an RAR.

4.71.10.5.3  (04-07-2014)
Substitute for Return Package

  1. When the taxpayer refuses to file a Form 990-T upon receiving a notice from the EP agent that a Form 990-T is due, a substitute for return package must be prepared by the agent.

  2. The words "Substitute for Return Prepared by TEGE: Employee Plans" will be entered on the top margin on the face of the return.

  3. The agent will complete only the top portion of the substitute for return. Complete the tax year beginning and end, the name and address, and items B, D and G.

  4. Make sure the trust's EIN is used on the return and not the plan sponsor's EIN. If the plan sponsor's EIN is used, the return will be rejected by the Service Campus. See IRM 4.71.10.4.1 for procedures in obtaining a trust EIN if the trust does not have one.

  5. The dollar amounts on the Form 990-T return will remain blank.

  6. Establish the Substitute for Return Form 990-T on RCCMS and AIMS in the same manner as agreed returns.

  7. Each return must be fully established on RCCMS and AIMS before it is closed to Mandatory Review.

  8. Attach Form 3198-A to the Substitute for Return. Include the following notation in the Special Instructions section of Form 3198-A: "Substitute for Return; Please process immediately."

    Note:

    These Forms can be found electronically within RCCMS.

  9. The Substitute for Return should be mailed to the Ogden Service Campus at the following address:

    IRS
    1973 N. Rulon White Blvd.,
    Mail Stop 6054
    Ogden, UT 84404

  10. When addressing the Express Services Routing slip (Form 9814), the recipient name should be "Mail Supervisor" with the recipient phone number of (801) 620-3753.

  11. When Ogden processes the Substitute for Return, a TC "150" with tax of $0 will be reflected on the corresponding BMFOLT print. A TC "150" must be present before tax can be assessed subsequent to the issuance of a statutory notice of deficiency.

  12. The agent will periodically request a BMFOLT print until the return posts. When the return posts, a 150 transaction code (TC 150) will be reflected on the account.

    Note:

    It normally takes four to eight weeks for the Ogden Campus to process a return once it is received.

  13. When the return posts, the agent will complete the Related or Subsequent Year Form 5500, 5330 and 990-T Request Form (the Form) and forward it to their manager. See IRM 4.71.10 Exhibit 2 at IRM 4.71 - Employee Plans Examination Exhibits for an example of this form.

  14. The manager will send the approved Form to EP Classification via the EP Classification mailbox.

  15. Once the Form is received, EP Classification will process the request.

    Note:

    The AIMS account and RCCMS activity will be created within a few days in the Group’s organization code.

  16. The agreed Form 990-T examination case file(s) and any related Form 5500 series returns may be closed to Mandatory Review when the RCCMS files are received from Classification and the return has fully posted on AIMS.

    Note:

    The case must be fully established on RCCMS and AIMS before the case is closed to Mandatory Review.

  17. Forward the unagreed case to Mandatory Review in status 20 on RCCMS and AIMS, and mail the case file to the following address:
    IRS EP Mandatory Review
    801 Broadway
    Room 397, MDP 13
    Nashville, TN 37203

4.71.10.5.4  (04-07-2014)
Closing the Case Unagreed

  1. Forward the unagreed case to Mandatory Review in status 20 on RCCMS and AIMS, and mail the case file to the following address:
    IRS EP Mandatory Review
    801 Broadway
    Room 397, MDP 13
    Nashville, TN 37203

  2. All unagreed cases require a full hard copy of all workpapers, forms, letters, etc., assembled in accordance with IRM 4.71.12.

  3. The RCCMS Office Documents folder should contain electronic versions of all workpapers, forms, letters, etc., using the RCCMS Naming Convention.

4.71.10.6  (04-07-2014)
Forms 990-T Established on AIMS and RCCMS in Error

  1. There are occasions when Forms 990-T are established on RCCMS and AIMS in error (i.e., it is later determined that tax is not due after the case has been established).

  2. If Form 990-T is established in error on AIMS:

    1. The agent will complete Form 10904, Request for Record Deletion from AIMS, and fax or email it to the EP AIMS Coordinator in ESSP. The fax number is (443) 853-5647.

      Note:

      On Form 10904, make sure the box next to disposal code 33 is checked. If the return has not posted (there is no TC 150 posting), make sure the box next to AM424D is checked.

    2. Obtain manager and Area Manager approval through electronic signatures on Form 10904.

    3. Save the electronically signed Form 10904 inside the Office Documents folder in RCCMS for the case being deleted.

    4. The RCCMS account will be closed to Support Processing with disposal code 901 (error account).

    5. Update the case to status 51 on AIMS and RCCMS when it is closed.

    6. The account will then be deleted by the EP AIMS Coordinator when the RCCMS record is received.


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